British pound sterling plunges after BoE’s unstable rate hike

British Pound

Thursday, the British pound sterling was on its way for the currency’s massive one-day drop against the single currency in over a year, after investors retreated and held their expectations for additional monetary tightening as the BoE or the Bank of England had its rate hike for the first time in over a decade.

The British pound sterling settled at 89.37 pence against the euro, which was 1.8% lower from their previous settlement. Sterling experienced its worst drop since October 7, 2016, when an abrupt drop temporarily shaved off a tenth of the currency’s value. On the other hand, the pound was seen edging against the greenback, and settled at $1.3279.

The unstable stance of the British pound was brought by the unstable rate hike conducted by the Bank of England, in which BoE claimed it expected only very gradual further increases would be needed after the first rate hike, and another two 25-basis-point hikes over the next three years.

In accordance to this, Alan Wilson, active fixed income portfolio manager at State Street Global Advisors, mentioned that they believe the British pound sterling’s weakness in response to this unstable hike is more than justified; as he refers to the comments given by BoE’s Governor: Mark Carney claiming that the Bank was broadly on the same page as investors, after investors focused on the fact that the Bank of England had not repeated earlier language about markets miscalculating the extent of future rises.

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