06/12/2024
Written by: Ian Morley
Summary:
The Bank of England has decided to reduce interest rates from 5.25% to 5%. However, Governor Bailey cautioned that the bank must avoid reducing rates too quickly or too significantly, emphasising that the decision was delicately balanced. He also noted that interest rates are unlikely to return to near-zero levels.
The British Pound had already declined before the meeting, so the immediate reaction to the announcement was subdued. However, it continued to weaken towards the end of the European session as stocks and risk appetite decreased. This was triggered by a disappointing ISM manufacturing report from the US, indicating further contraction in the sector, which led markets to anticipate three rate cuts from the Federal Reserve this year. Normally, this would be negative for the US Dollar, but market concerns now suggest the Fed may have delayed rate cuts for too long, potentially harming the economy. This flight to safety resulted in gains for both the US Dollar and Swiss Franc.
Speeches:
Market Insight:
Given yesterday’s market movements, today’s job numbers will be closely watched. Typically, weaker job figures would indicate a higher likelihood of rate cuts, leading to a weaker US Dollar. However, there is growing concern about the US economy’s health, and a weaker report could increase market anxiety and, paradoxically, strengthen the US Dollar due to safe-haven demand.
With the global stock sell-off intensifying overnight, risk appetite appears to be lower this morning, causing the British Pound to start the day lower. This could compound the effects of yesterday’s rate cut by the Bank of England, and we remain cautious about further declines for the Pound, despite its strong performance earlier this year.