Yahoo Finance Pound falls against dollar after Bank of England interest rate news
The pound (GBPUSD=X) fell against the dollar on Thursday as the Bank of England (BoE) announced that it was keeping UK interest rates on hold at 5.25%.
It was down 0.3% against the US greenback at $1.246 and slumped 0.2% against the euro, which is worth 86p.
Sterling moved lower amid increasing bets that Threadneedle Street will now cut interest rates in June. Money markets are forecasting a 55% chance the bank rate will be cut by a quarter of a percentage point at its next meeting.
“Indeed, the BoE’s determination to clear its balance sheet of bonds has significantly impacted sterling and FX markets as a whole so far," said Pierre Veyret, technical analyst at ActivTrades.
“The recent weakness in sterling has significantly supported appetite for large exporting groups listed on the FTSE-100 index, which is now trading at an all-time high above 8,350 points.”
He added: “The market currently trades above a short-term bullish trendline, but the recent failure to clear the 8,382pts level, driven lower by banking shares, may be the sign that a pull-back is now on its way for UK equities.
“The BoE’s decision will likely set the tone, and we expect market volatility to progressively increase throughout today’s trading session.”
Read more: Bank of England keeps interest rates at 16-year high
It comes as the Bank of England expects inflation to pick up towards the end of this year, but it is expected to fall more than previously thought.
Consumer prices index (CPI) inflation is expected to fall below the Bank’s 2% target between April and June, but rise again to 2.6% in the second half of this year as the impact of recent drops in energy prices fades.
In the longer term, it dropped its projections for CPI inflation to 2.25% for 2025 and 1.5% in 2026, down 0.25 and 0.5 percentage points respectively on February estimates.
Governor Andrew Bailey said things were moving in the right direction but fell short of giving an exact date for a rate cut.
"We’ve had encouraging news on inflation and we think it will fall close to our 2% target in the next couple of months," he said. "We need to see more evidence that inflation will stay low before we can cut interest rates. I’m optimistic that things are moving in the right direction."
The BoE also updated its forecast and now believes that the UK economy returned to growth in the first quarter of this year, after shrinking in the third and fourth quarters of 2023.
Watch: Why interest rates matter to bonds, stocks and cash
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