The pound extended a drop to the lowest since March after the Bank of England kept interest rates unchanged for the first time in almost two years.
(Bloomberg) — The pound extended a drop to the lowest since March after the Bank of England kept interest rates unchanged for the first time in almost two years.
Shares in UK banks and home builders rose as traders trimmed their bets on further rate hikes. The central bank held its key rate at 5.25%, ending a series of 14 successive hikes since December 2021, after a surprise drop in August inflation this week.
“Inflation has fallen a lot in recent months and we think it will continue to do so,” BOE Governor Andrew Bailey said in a written statement. “That’s welcome news. But there is no room for complacency. We need to be sure inflation returns to normal and we will continue to take the decisions necessary to do just that.”
Europe’s Stoxx 600 Index was down 1%, but off its lows for the session. US futures indicated more declines on Wall Street. Brent futures dropped for a third day in the longest losing run in almost a month. Treasury 10-year yields increased, while the dollar strengthened.
A day after the Federal Reserve’s meeting, Europe had its own frenetic flurry of central bank decisions. Before the BOE, Swiss National Bank surprised investors by holding interest rates, causing the franc’s steepest drop since May against the euro.
Sweden’s Riksbank increased its key rate as expected and said more hikes were possible, while Norway’s central bank said more tightening may come in December after raising rates to the highest in more than 14 years.
The Fed on Wednesday held its target range, while updated quarterly projections showed most officials favored another rate hike in 2023. Policymakers also see less easing next year, with the median forecast for the federal funds rate at 5.1% by year-end, up from 4.6% when projections were last updated in June.
“People did expect a hawkish hold from the Fed, but it’s the extent of the hawkishness that surprised,” said Lee Hardman, a strategist at MUFG Bank Ltd. “We thought they may take one cut out of next year’s forecasts — instead they took two out. So it was much more hawkish than markets were pricing in.”
Treasury yields were broadly higher after the rate on the two-year note, which is more sensitive to imminent Fed moves, hit the highest since 2006 on Wednesday.
The dollar gained against most major currencies, aside from the yen, which traded around 148 per dollar after weakening on Wednesday to the lowest level since November.
There are heightened prospects of official support for the Japanese currency, said John Vail, chief global strategist for Nikko Asset Management Co. in Tokyo. “Japan’s Ministry of Finance is likely to intervene in large fashion at 150 per dollar because it is hard to tolerate more inflationary pressure.”
The value of the yen has slumped to the lowest on record, as measured against a broad basket of its peers and adjusted for inflation, according to data from the Bank for International Settlements. This underscores the pressure to address yen weakness at the Bank of Japan, which is where this week’s series of central bank policy meetings wraps up on Friday.
Read more: Traders on Intervention Watch With Dollar-Yen Near 150
Among individual stock moves Thursday, Broadcom Inc. fell in US premarket trading, following a report that Google executives “extensively” discussed dropping the semiconductor maker as an AI chips supplier as early as 2027. ARM Holdings Plc slid, with the chip designer nearing its IPO price, as rising bond yields put pressure on growth stocks.
FedEx Corp. climbed after the courier raised the lower end of its outlook for EPS. Next Plc outperformed in London after the UK retailer raised its forecast.
Elsewhere, oil’s breakneck rally is taking a breather as a smaller-than-expected drop in US crude stockpiles bolstered technical resistance to further gains.
Key events this week:
- Eurozone consumer confidence, Thursday
- Bank of England policy meeting, Thursday
- US leading index, initial jobless claims, existing home sales, Thursday
- China’s Bund Summit, Friday
- Japan CPI, PMIs, Friday
- Bank of Japan rate decision, Friday
- Eurozone S&P Global Eurozone PMIs, Friday
- US S&P Global Manufacturing PMI, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.7% as of 7:12 a.m. New York time
- Nasdaq 100 futures fell 1%
- Futures on the Dow Jones Industrial Average fell 0.5%
- The Stoxx Europe 600 fell 1%
- The MSCI World index fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.1% to $1.0646
- The British pound fell 0.6% to $1.2270
- The Japanese yen rose 0.3% to 147.87 per dollar
Cryptocurrencies
- Bitcoin fell 1.3% to $26,743.77
- Ether fell 1.8% to $1,595.26
Bonds
- The yield on 10-year Treasuries advanced three basis points to 4.44%
- Germany’s 10-year yield advanced four basis points to 2.74%
- Britain’s 10-year yield advanced seven basis points to 4.28%
Commodities
- West Texas Intermediate crude fell 0.6% to $89.14 a barrel
- Gold futures fell 1.2% to $1,944 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Lynn Thomasson.
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