British pound coins dive into the water in this illustration image, October 26, 2017. Image taken October 26, 2017. REUTERS/Dado Ruvic/Illustration/File Photo Acquire License Rights
LONDON, Nov 8 (Reuters) – The pound weakened against the dollar and the euro on Wednesday as markets continued to digest comments from the Bank of England’s chief economist that interest rate cuts could come around mid-2024.
The pound was last down 0.4% against the dollar at $1.2251, hitting a near two-month high of $1.2428 on Monday.
Some of these moves against the dollar were due to the dollar recovering from recent losses, but the pound was also slightly weaker against the euro, which was at 87.05 pence, above a roughly three-week low of 86.5 Pence on Monday.
Markets focused on BoE chief economist Huw Pill’s comments on Monday that pricing in financial markets – which currently points to a first rate cut in August 2024 – “does not appear entirely unreasonable”.
However, Gov. Andrew Bailey said Wednesday it’s “really too early to talk about rate cuts.”
“The pound is quite interesting…talking openly about rate cuts is not something central bankers do,” said Francesco Pesole, foreign exchange strategist at ING.
“I think sterling will be under pressure today because markets have not priced in these rate cuts too aggressively. The Bank of England’s interest rate expectations could be cut even further.”
Markets are currently fully pricing in a 25 basis point BoE interest rate cut in August, and pricing reflects a roughly two-thirds chance of such a cut in June. A cut in August was seen as likely but was not fully priced in before the comments.
This was also helped by an industry survey released on Wednesday that showed wage growth slowed in October and increasing layoffs led to a rise in the number of job seekers.
Wages growth is one of the BoE’s considerations as it assesses the persistence of inflation in the UK and its interest rate policy.
Bailey said on Wednesday he was “optimistic” that the BoE would bring inflation back to 2% by the end of 2025, as the bank forecast last week
Reporting by Alun John Editing by Bernadette Baum
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