The Pound was mixed against most of its major peers on Wednesday after minutes from the Bank of England’s June policy meeting showed that some policy makers were edging closer to voting for an interest rate rise.
The minutes showed that the Bank of England’s monetary policy committee voted 9-0 in favour of leaving interest rates on hold at the record low level of 0.5% for another month. They also showed that the Bank was surprised that the financial markets were pricing in a low probability of rates rising this year suggesting that a rate rise before the end of this year is likely.
Despite that the Pound experienced mixed trading as the markets digested the news.
“The economy was starting to return to normal. Part of that normalisation would be a rise in Bank Rate at some point. The precise timing of the rise would depend on the outlook for inflation. That in turn, would depend on the data flow, and in particular what that implied for the degree of slack, the prospects for its absorption, and the broader outlook for wages,” the minutes said.
While the economic outlook is improving, the committee remains divided on when the first tightening should take place.
“The case for raising the bank rate gradually and cautiously was reinforced by uncertainty over its likely impact on the economy, following the long period at 0.5 percent, although it could be argued that the more gradual the intended rise, the earlier it might be necessary to start tightening policy, If policy were tightened prematurely however, that could be associated with considerable costs in terms of lost output,” the BOE said in today’s minutes.
Some economists were disappointed that there was not more dissention amongst policy makers over whether to leave rates unchanged. The 9-0 vote caused some to lower their bets for a rate rise and yesterday’s lower than expected inflation data also cast doubts as the minutes mentioned inflation specifically as one of the major factors to inspire a rate rise. Weak wage growth also continues to be an issue.
Pound (GBP) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,US Dollar,1.6966 ,
Pound Sterling,,Euro,1.2518 ,
Pound Sterling,,Australian Dollar,1.8172 ,
Pound Sterling,,New Zealand Dollar,1.9569 ,
US Dollar,,Pound Sterling,0.5896 ,
Euro,, Pound Sterling ,0.7989 ,
Australian Dollar,, Pound Sterling ,0.5503 ,
New Zealand Dollar,,Pound Sterling,0.5107 ,
[/table]
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