British Pound Jumps as Policymakers Signal Interest Rate Hike

The British pound jumped against its major counterparts on Thursday after UK policymakers hinted that interest rates may be raised relatively soon.

The Bank of England’s Monetary Policy Committee stated that UK interest rates were maintained at 0.25% after concluding its latest policy meeting. Members of the committee voted 7–2 for the decision, which was widely expected by analysts. The central bank’s quantitative easing program was also maintained at 10 billion pounds.

In the meeting minutes, the Bank of England warned that investors are underpricing expectations for future interest rate hikes, which appears to be weighing on the pound. The minutes also revealed that the majority of the Monetary Policy Committee members believe that a tighter monetary policy would be appropriate if the economy remained stable.

Shortly after releasing the meeting minutes, the British currency became the best performing major currency for the day. The positive outlook for future interest rates overshadowed the 7–2 vote composition to keep rates unchanged, which was more than the 6–3 composition that investors hoped for.

The hawkish tone from the Bank of England followed inflation data earlier this week, which showed stronger inflation than anticipated within the nation. The consumer price index rose from an annualized rate of 2.6% in July to 2.9% in August to exceed estimates of a 2.8% reading.

The tone change is believed to be aimed at dealing with the market’s complacency to ensure economic stability. Some analysts now believe that the British central bank could raise interest rates as soon as November.

GBP/USD jumped to 1.3388 as of 15:10 GMT on Thursday, the pair’s highest level since September 2016, after starting trading today at 1.3205. EUR/GBP dropped to 0.8874, which was the lowest level since July 20. EUR/GBP began the day at 0.8998.

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