The Pound Sterling witnessed a decline following the Bank of England’s (BoE) decision to maintain borrowing rates at 4.75%, as anticipated.
In the past two months, the acceleration of UK inflation has lent credence to the BoE’s choice to hold interest rates steady. The UK Consumer Price Index (CPI) for November indicated that annual headline inflation climbed to 2.6% from October’s 2.3%, while the core CPI, excluding volatile components, rose to 3.5% from 3.3%.
Amidst this, three out of nine members of the Monetary Policy Committee (MPC) advocated for a 25-basis point reduction in interest rates. Notably, Swati Dhingra, known for her support of an expansionary policy, was joined by Alan Taylor and Dave Ramsden in favoring a dovish move.
The Federal Reserve’s recent 25-basis point cut to 4.25%-4.50% and its hawkish guidance for 2025 also added to the market’s complexity.
In the early North American session on Thursday, the Pound Sterling faced a significant sell-off against major currencies. Market participants are now closely watching the BoE’s policy outlook guidance. Analysts at Bank of America opined that it was premature for the BoE to commit to a sustained rate-cutting cycle or to assume that risks to inflation returning to the 2% target had diminished.
Looking ahead, investors have their eyes set on the UK Retail Sales data for November, slated for release on Friday. After a 0.7% decline in October, a 0.5% monthly increase is expected, making it a crucial indicator of consumer spending and potential market movements.
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