Pound slumps after Bank of England update
The British pound dropped to this year’s lowest point against the euro in reaction to the Bank of England cutting its forecast for the UK economy as it left leading interest rates unchanged.
Sterling’s weakness, including versus the dollar, in turn lifted London stocks as it gives many exporting companies a shot in the arm, boosting their international competitiveness.
Fawad Razaqzada, an analyst with Forex.com, said investors were disappointed that only two Bank of England monetary policy council members voted in favour of a rate hike — suggesting that such a move is now far off.
“The market’s reaction was swift: the pound fell sharply and this helped to boost the FTSE 100,” he said.
“A dovish Bank of England update was helpful in sending the pound lower,” said Mike van Dulken, head of research at Accendo.
Craig Erlam, senior market analyst at OANDA, said the Bank’s attempts to keep rate hike expectations alive fell on “deaf ears” in the markets.
“While the conversation is still going on in the background and the numbers could easily change, it would appear a hike is further away in the near term,” Erlam said.
The downturn for the British currency may be far from over, said FXTM research analyst Lukman Otunuga, blaming “the unsavory combination of uninspiring UK economic data in July and uncertainty surrounding Brexit talks”.
With political uncertainty, soft economic fundamentals and ongoing Brexit concerns weighing heavily on the British economy, “investors may start to question whether the BoE moves forward with raising rates in 2018”, he warned.
Corresponding strength in the euro, meanwhile, weighed on Germany’s DAX index of leading stocks which was down in mid-afternoon in Europe.
“Euro strength is the worry of the moment,” Marco Bruzzon, deputy managing director at Mirabaud Asset Management, told AFP.
Paris, meanwhile, traded higher, helped by a rebound in banking stocks after Wednesday’s sell-off.
Dow holds 22,000
At the opening bell in New York, the Dow index held on to territory above 22,000, a day after breaching that level for the first time.
Shares in Tesla rose in early business after the company’s results, with investors willing to bet on the success of the Model 3 which the company began rolling out at the weekend.
US stocks had risen to new highs as second-quarter earnings have broadly exceeded expectations, even as the greenback has come under sustained pressure from political uncertainty in Washington with the Trump administration mired in controversy.
A trigger for further dollar losses could come on Friday if US non-farm payrolls data for July disappoint and are seen lessening the odds of additional Fed rate hikes.
Earlier Thursday, Asian equities pulled lower with sentiment dampened by falling tech shares and a survey that showed slowing activity in China’s services sector.
“In Asia, we saw a slight fall in equities as the Caixin survey of Chinese services grew at a slower rate than expected, and that gave traders an excuse to sell,” said analyst David Madden at trading firm CMC Markets UK.
Oil climbed as traders took heart from Wednesday’s fall in US crude stocks.
Key figures around 1330 GMT
London – FTSE 100: UP 0.9 percent at 7,474.69 points
Frankfurt – DAX 30: DOWN 0.1 percent at 12,165.21
Paris – CAC 40: UP 0.6 percent at 5,136.19
EURO STOXX 50: UP 0.2 percent at 3,467.01
New York – Dow: FLAT at 22,017.88
Tokyo – Nikkei 225: DOWN 0.3 percent at 20,029.26 (close)
Hong Kong – Hang Seng: DOWN 0.3 percent at 27,531.01 (close)
Shanghai – Composite: DOWN 0.4 percent at 3,272.93 (close)
Euro/dollar: DOWN at $1.1851 from $1.1856 at 2100 GMT on Wednesday
Pound/dollar: DOWN at $1.3129 from $1.3224
Pound/euro: DOWN at 1.1085 euros from 1.1152
Dollar/yen: DOWN at 110.46 yen from 110.75 yen
Oil – Brent North Sea: UP 39 cents at $52.75 per barrel
Oil – West Texas Intermediate: UP 27 cents at $49.86