Pound Sterling Plummets against Euro and Dollar as Bank of England Declares Victory in Fight Against Inflation

{{0|Pound Sterling}} Plummets against Euro and Dollar as Bank of England Declares Victory in Fight Against Inflation

PoundSterlingLIVE - Pound Sterling slumped against the Euro, Dollar and other major currencies after the Bank of England said it had ended its interest rate hiking cycle, believing that inflation was now on course to fall sharply over the coming months.

The Bank's communication meanwhile revealed there was little appetite to raise interest rates again, inviting markets to speculate it would cut interest rates far sooner than previously anticipated.

We said in our pre-Bank of England report that a decision to hold interest rates that was accompanied by no commitment to further hikes would represent the most bearish scenario for the Pound.

Indeed, this has come to pass: the GBP/EUR exchange rate gapped lower to 1.1513 on the developments with the Pound to Dollar exchange rate lurching to 1.2249.

The Bank of England did not even try to fight back against the market bringing forward rate cut expectations, something the Federal Reserve has so successfully managed to do via its policy of skipping hikes but indicating it is not yet done.

The Bank of England, on the other hand, has declared victory on inflation and in doing so has sent a clear message that the next move is a cut.

This could prove premature given the elevated nature of UK inflation and the tight labour market.

But this is an instinctively 'dovish' central bank and for the Pound, this only spells weakness.

An original version of this article can be viewed at Pound Sterling Live