Sterling falls post BOE policy decision

Sterling fell after the latest Bank of England (BOE) policy decision, weakening to almost 90.5p against the euro and dropping back to around $1.31 against the dollar. UK bond yields also fell post the decision, with 2- and 10-year yields declining by around 6bps and 10bps respectively

The BOE’s Monetary Policy Committee (MPC) decided to keep interest rates unchanged at 0.25%, with only two members voting for an immediate 25bps hike this time around, down from three at the previous meeting. The MPC also revised down its forecast for GDP growth this year, to 1.7% from 1.9%,  and for 2018, to 1.6% from 1.7%, amid a squeeze on household incomes from higher inflation and with Brexit uncertainty weighing on investment

The MPC expects inflation to peak at around 3% before its starts to ease back slowly. However it is still expected to overshoot its 2% target at the end of the 3 year forecast horizon, hence the MPC says a gradual albeit limited increase in interest rates may be necessary. The MPC, though, is likely to sit on its hands for a while longer as its waits and sees how the economy evolves

The dollar remains under pressure ahead of today’s employment report in the US, trading at just under $1.19 to the euro. The consensus forecast is for job gains of 180,000 in July, a dip in the unemployment rate to 4.3%, and a slight deceleration in annual wage growth to 2.4%. A weaker than expected outturn for all/any of these and the dollar could extend its fall