Let the storm pass or act? Faced with the fall of the pound sterling towards parity with the dollar, at 1.0350 during the exchanges in Asia, the Bank of England (BoE) has, it seems, not settled this thorny question , according to financial news agency Bloomberg. The Old Lady of Threadneedle Street” watch the market closely “, According to a source close to the file quoted by the agency. Bloomberg adds, however, that the BoE may have to intervene with an emergency rate hike in the coming days, well before the next meeting on November 3, in order to stabilize the pound sterling and government bonds.
The markets expect an increase of more than 165 basis points, which will be added to that of 50 basis points decided last week and which took key rates from 1.75% to 2.25%. On the bond market, the yield on two-year bonds, among the most rate-sensitive, jumped 56 basis points to reach 4.52%, its highest level since 2008. That on 10-year bonds was propelled above 4%, for the first time since 2010. The BoE declined to comment. As for the new Prime Minister, Liz Truss, she said earlier today that she would not comment on market movements.
Credibility
The drop in the pound, by more than 7% in ten days, follows the presentation, at the end of last week, of budgetary measures considered to be very costly, combining the payment of part of the household energy bill and the renunciation to a series of tax hikes. This could force London to borrow an additional 72 billion pounds on the markets. What cause concern among investors. ” Downside risks continue to dominatesaid Alvin Tan, head of currency strategy for Asia at RBC Capital Markets, quoted by Bloomberg. Not just because of the UK’s waning political credibility, but also because of the soaring US dollar. »
Several BoE officials, including Chief Economist Huw Pill and Deputy Governor Jon Cunliffe, are due to speak this week and their comments will be watched closely by the markets, looking for clues on where interest rates are headed. British interest and assets. ” The most likely course of action is for the various members of the Monetary Policy Committee to step up the hawkish rhetoric », judge Antoine Bouvet, strategist of ING Groep.
CP