Thur City brief: Pound falls on ‘rate cut’ remarks; FTSE hits new high
Comments from the Bank of England’s chief economist that the monetary policy committee needed to be ready to cut interest rates to meet its 2% target sent sterling into a tailspin.
Andy Scott, associate director of FX advisory services at HiFX, said: “Yesterday’s slightly more dovish minutes from the Bank’s meeting this month contained no reference to a previous discussion around the potential need to cut interest rates, so today’s comments come as quite a surprise.
“Whilst he said the remarks represent his own view, rather than that of the MPC as a whole, they carry additional significance in light of the fact that several central banks have cut rates recently due to falling inflation.
“Our view remains that rates will be kept on hold this year and will likely increase next year, [but] the global trend of slowing price rises, or in some cases falling prices, is something to keep an eye on. Monetary policy is driving heightened levels of volatility in the FX markets and today’s comments saw sterling fall by 0.5% against both the dollar and the euro.”
The FTSE100 hit a new record in earlier trade, touching 6,966 and tantalisingly close to the next big benchmark. It closed up 17pts at 6,962.32.
Earlier euphoria over the Budget and a possible delay to any interest rate rise in the US was tempered by the latest instalment in the Greek drama.
Time and patience are said to be running out for the debt-ridden country and its policymakers, with a meeting of Eurozone leaders and the Greek Prime Minister taking place today.
Sentiment had been bolstered by comments yesterday from the Federal Reserve which suggested the interest rise would not take place in June as some had expected.
“Traders are delighted to have the Fed meeting over and done with as now they can turn their attention back to the eurozone, where the market is certain that Germany and Greece will be at each other’s throats,” said David Madden at IG.
Among today’s losers was Next which fell slumped 4% or 305p to 7,315p as a cautious note on the year ahead took the gloss off good full-year figures.
North Sea focused Enquest, which was carved out of Petrofac, was a notable gainer, up 19% at 40.5p as the Budget tax moves had a direct effect on the firm, saying it would be able to invest more in some fields.