The pound sterling subsided after yesterday's Bank of England (BoE) rate announcement. The result is BoE raised UK interest rates by as much as 50 basis points in line with consensus expectations.
However, this made the GBP/USD plunged more than two percent in less than 24 hours. When the news was written at the beginning of Friday's European session (16/December), GBP/USD had reached the 1.2150s range.
Besides that, the EUR/GBP pair reached a one-month high level. Two factors contributed to the sell-off of the pound sterling this time.
First, the market considers yesterday's BoE announcement to be less hawkish than the ECB and the Fed. Second, market sentiment deteriorated due to the aggressive trend of rising global interest rates.
Three Central Banks Raised their Rates by 50 BP
The Fed, BoE and ECB simultaneously raised their interest rates by 50 basis points yesterday. All three also signaled an intention to raise that rate further in the near future to counter rising inflation.
However, the BoE has been less outspoken in presenting future interest rate projections. The Fed affirmed the need for an additional rate hike to a rate of 5.1 percent in 2023.
ECB President, Christine Lagarde, also voiced an intention to raise interest rates by 50 basis points several more times. On the other hand, the BoE "just" puts it to one of the main paragraphs in the policy statement.
A majority of the Committee members consider one thing. If the economy develops broadly in line with the projections of the November Monetary Policy Report, further bank rate hikes may be necessary to return sustainable inflation to target.
Sterling has been Affected by Deteriorating Global Sentiment
You can read it as a BOE statement. Such a statement does not contain any new surprises for market participants, so it fails to support the pound sterling currency in the market.
Moreover, two of the nine members of the BoE's policy committee expressed hope that interest rates would not be raised. The positive impact of the announcement of that thing was relatively minimal.
Instead, sterling has been further affected by deteriorating global sentiment. So far, the big surprise is the hawkish attitude of the ECB Institution.
The contrast between the BoE and ECB announcements is evident in the movement of 2Y bond yields. It is especially those which rose by 24 bps in Europe and fell by 5 bps in the UK, as said by Derek Halpenny, Head of Global Research at MUFG.
Hawkish Message can Press the Risk Appetite
Hawkish messages from the Fed and ECB will generate upside risks for market interest rate sentiment going forward, particularly the ECB. This could further weaken risk appetite.
It is especially those which have deteriorated and could get worse from now on. As is well known, the pound sterling is a risk-sensitive currency and tends to weaken along with global equities.
When global risk appetite is poor, sterling is usually depressed. The higher EUR/GBP is also in line with deteriorating risk sentiment, as stated by Halpenny.
Elsewhere, Gold prices rose nearly 2% on Tuesday in relation to the lower-than-market inflation data. According to the latest release, the annual inflation rate in America fell.
Gold Price Back to Positive Track
That annual inflation fell from 7.7% to 7.1% or lower than the forecast of 7.3%. In Wednesday's Asian session, gold prices remained above $1800 per troy ounce.
It was still there despite the market's wait and see ahead of the Fed's monetary policy announcement. In this event, market participants expect the Fed to slow the pace of rate hikes to 50 bps.
The gold price finally managed to return to a positive path while trading above the Supertrend indicator. Despite the correction that occurred after touching the level of 1824, the overall movement trend is still on a bullish path.
