The British pound fell 2% against the dollar after the Bank of England warned of a recession
Sterling was trading at $1.1162 at 1:20 p.m. London time, its lowest level since Oct. 21, after opening the session at $1.1418 and falling during the morning.
It came as the Bank of England raised interest rates by 75 basis points to 3% with its largest single increase in 33 years.
But it also said it expected interest rates to reach a lower level than currently priced in financial markets, which is around 4.6%.
“The majority of the committee is of the view that, if the economy develops broadly in line with the projections in the latest Monetary Policy Report, further increases in the Bank rate may be required to bring inflation back to target levels, albeit at a lower peak than in financial terms. markets,” he said in his statement.
BOE governor Andrew Bailey said at a news conference following the announcement that it was “important because, for example, it means that new fixed-term mortgage rates don’t have to rise as much as they did.”
“This is not the first time GBP has fallen in response to a BoE rate hike this year,” Jane Foley, head of FX strategy at Dutch bank Rabobank, said in emailed comments.
“In May, the pound fell as expected after a 25bps rate hike, and in August the pound fell after the Bank raised rates but warned of a 5-quarter contraction starting in Q4 2022.”
“On the UK economy, the Bank’s staff now expect GDP to have contracted by 0.5 per cent in the third quarter of 2022, which is 0.9 percentage points weaker than forecast in the August monetary policy report.”
“Importantly, the Bank also warned that a move higher in interest rates would be ‘before prices in financial markets peak’. So there was very little the Bank could do to prevent the GBP from falling.”
#British #pound #fell #dollar #Bank #England #warned #recession