Sterling at two-week high as traders digest BoE vote split

LONDON: The pound neared two-week highs versus the dollar on Friday as traders continued to digest Thursday’s Bank of England meeting, which saw interest rates cut to 4% as well as the central bank’s first ever re-vote. At 1124 GMT the pound was unchanged at $1.345, having risen to its highest level since July 25 in early trading.

The dollar was marginally stronger across the board on Thursday, though headed for a weekly loss, as traders mull U.S. President Donald Trump’s temporary choice for a fill-in Federal Reserve governor.

Meanwhile, sterling was stronger against the euro, which eased 0.2% to 86.59 pence.

The BoE cut rates on Thursday, but four of its nine policymakers voted to keep borrowing costs on hold, leading to the Monetary Policy Committee holding two rate votes for the first time in its history.

The meeting saw the pound rise by 0.7% against the dollar on Thursday, its biggest one-day rally in 11 weeks. It is on track for a 1.3% rise this week.

“The key takeaway is that they did maintain their gradual and careful guidance when it comes to future policy easing,” said Michael Brown, senior research strategist at Pepperstone.

“…if you cut out all the noise about having to vote twice…that guidance is still there and…kind of implies that that means a quarterly pace of monetary easing,” Brown said.

Traders are placing a 93% chance of no change to the bank rate at the BoE’s next meeting in September.

“As Bailey said, the direction of travel for rates is lower, I still think they go again this year, it’s just a question of the conviction behind that vote has waned a little bit,” said Brown.

In a note, Commerzbank FX strategists said BoE decision-makers appear increasingly concerned about persistent inflation.

“It seems extremely unlikely that interest rates will be raised. Rather, the question is when we can expect the next rate cut,” they wrote, adding that a cut at the September meeting now seems highly improbable, and one at the November meeting could be called into question if inflation remains high.

“For the time being, this is good news for the pound,” they said.