Log in
Forgot password ?
Become a member for free
Sign up
Sign up
Dynamic quotes 

4-Traders Homepage  >  Indexes  >  FTSE 100 Index    F100   GB0001383545

News SummaryAll newsNews of the components ofTweets

Sterling, Bond Yields Tumble on BOE Rate Rise -- Update

share with twitter share with LinkedIn share with facebook
share via e-mail
11/02/2017 | 04:19pm CEST
By Christopher Whittall, Mike Bird and Riva Gold 

The pound slid sharply and bond yields fell after the Bank of England raised interest rates for the first time in over a decade but signaled that further increases weren't imminent.

The BOE's rate-setting committee voted by a margin of seven votes to two to raise its main policy rate from 0.25% to 0.5%.

Though widely expected, the move triggered a sharp market reaction, with sterling weakening and bond yields falling--shifts that are usually consistent with expectations that the central bank won't rush to raise interest rates further.

"The market response to the U.K. rate increase has been relief that the bank expects a very gradual hiking cycle," Mike Amey, head of sterling portfolios at Pacific Investment Management Co., said in a note.

The pound was trading down by 1.3% against the euro at EUR1.125 after the announcement, which will be the biggest one-day fall since January if the decline holds. Sterling fell 1.1% against the dollar to $1.31.

The yield on 10-year U.K. government debt fell around 0.07 percentage point to 1.27%, according to Tradeweb. Yields fall as prices rise.

Currencies typically decline when investors expect interest rates to remain low, as they shift their investments toward those that offer higher yields. Moves in bond yields tend to be heavily linked to short-term interest rates.

In its new statement, the Bank of England didn't reiterate its guidance from September that interest rates may need to rise by more than market participants expect. However, it said its outlook for inflation and economic activity were broadly similar to its last projections in August.

"The BOE has displayed quite a conservative outlook for the U.K. economy, " said Viraj Patel, foreign-exchange strategist at ING Bank.

He added that the pound was more likely to appreciate than fall from here.

"It doesn't seem like they're giving a ' one and done' signal on interest rates," Mr. Patel said. "From my point of view, I'll be buying this dip, basically."

Jordan Rochester, foreign exchange strategist at Nomura, also saw Thursday's decline in sterling as a short-term reaction. The U.K.'s negotiations over its exit from the European Union are seen as key across British markets.

"I don't really think this can be a new trend in sterling. I don't see how the Brexit negotiations can actually get worse than they were at the October meeting," he said.

The pound has been under pressure since the June 2016 Brexit vote and analysts believe Britain's negotiations and the political uncertainty around them have held sterling back.

Many investors believe those negotiations remain the pivotal factor, rather than the Bank of England, for whom Brexit has been key when making its decisions.

"There's so much uncertainty around where Brexit negotiations are going, " said Andrew Mulliner, a portfolio manager at Janus Henderson Investors.

"That's the dominant driver for U.K. risk at the moment," he added.

In stock markets, the FTSE 100 index--which generates roughly 68% of its revenues outside the U.K., according to FactSet--rose 0.4% in afternoon trading, leading gains among major developed equity markets.

A weaker currency tends to benefit multinationals as they translate revenue from overseas.

Some FTSE 100 companies that generate the greatest share of revenues overseas climbed after the announcement as the pound fell, with shares of British American Tobacco and pharmaceutical company Shire up 1.6% in afternoon trading.

Analysts are skeptical, however, that a weaker currency will support the FTSE 100 index for much longer.

"A recent return of U.K. inflation and, importantly, the onset of the first hiking cycle in 10 years, will likely lead to a dislocation in the negative relationship between sterling and U.K. equities," strategists at UBS wrote, noting currency-linked inflation can add to costs and hit local demand.

Smaller companies in the U.K. showed a more muted reaction to the bank's announcement, with the FTSE 250 index up 0.2% and the FTSE Small Cap Index up just 0.1%.

Shares of U.K.-focused lenders Royal Bank of Scotland Group and Lloyds Banking Group lagged behind, falling 1.2% and 1.4% respectively. A slower pace of rate increases could hurt banks' lending revenues.

British stocks remain unloved by international investors. The U.K. was the top underweight position held by global fund managers surveyed by Bank of America Merrill Lynch in October.

Write to Christopher Whittall at [email protected], Mike Bird at [email protected] and Riva Gold at [email protected]

share with twitter share with LinkedIn share with facebook
share via e-mail
Latest news on FTSE 100 INDEX
06/18LONDON STOCK EXCHANGE : Oil stocks help FTSE outperform amid trade tensions
06/18EUROPE MARKETS: European Stocks End Lower As Merkel Comes Under Pressure In G..
06/18LONDON MARKETS: U.K. Stocks Finish Down Slightly As Trade Conflict Spooks Buy..
06/15LONDON STOCK EXCHANGE : Trade tariffs send FTSE to fourth straight week of losse..
06/15LONDON MARKETS: FTSE 100 Drops From 4-week High As Trade-war Worries Hurt Min..
06/14ADRs End Mostly Lower; iQiyi, Unilever Trade Actively
06/14GRAIN HIGHLIGHTS : Top Stories of the Day
06/14LONDON MARKETS: FTSE 100 Closes At Highest Level In A Month As Pound Sinks Af..
06/14GOODBYE LONDON : Unilever Set to Lose Its Place in the FTSE 100 -- Update
06/14Unilever Is 'Extremely Unlikely' To Be Included in FTSE -CFO
More news
News of the components of FTSE 100 INDEX
03:03aHSBC : Transaction in own shares 18 June 2018 - Announcement made to the HK stoc..
03:03aHSBC : Transaction in own shares 15 June 2018 - Announcement made to the HK stoc..
02:53aHSBC : Next Day Disclosure Return (15 June 2018) - Announcement made to the HK s..
06/18SHIRE PLC : Other Events, Financial Statements and Exhibits (form 8-K)
06/18NEDA CHIEF : Inflation likely peaked in May
06/18HSBC : Transaction in Own Shares (1-page PDF 60KB)
06/18GLAXOSMITHKLINE : Health and Human Services Department (HHS); Food and Drug Admi..
More news
Chart FTSE 100 INDEX
Duration : Period :
FTSE 100 Index Technical Analysis Chart | F100 | GB0001383545 | 4-Traders
Technical analysis trends FTSE 100 INDEX
Short TermMid-TermLong Term
Top / Flop FTSE 100 INDEX
RSA INSURANCE GROUP 667.8 Delayed Quote.2.42%
MICRO FOCUS INTERNATIONAL PLC 1369.5 Delayed Quote.1.97%
EVRAZ 538.2 Delayed Quote.1.62%
ROYAL DUTCH SHELL PLC 2659.5 Delayed Quote.1.30%
AVIVA 508.6 Delayed Quote.1.23%
PEARSON 868.8 Delayed Quote.-1.74%
3I GROUP 953.4 Delayed Quote.-1.89%
G4S 269.7 Delayed Quote.-2.21%
ROLLS-ROYCE 927.4 Delayed Quote.-2.38%
DS SMITH 549.6 Delayed Quote.-2.52%
Heatmap :