Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
Settings
Settings
Dynamic quotes 
OFFON

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

Indicative prices
SummaryChartsNewsAnalysisHeatmapComponents 
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
0
11/02/2017 | 04:19pm CET
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
0
Latest news on FTSE 100 INDEX
02/16EUROPE MARKETS : European Stocks Post Best Week Since 2016 As Global Appetite Fo..
DJ
02/16LONDON MARKETS : FTSE 100 Marks Best Week Since 2016, As Global Stocks Rebound
DJ
02/16FTSE gets back on its feet after four-week losing streak
RE
02/16EUROPE MARKETS : European Stocks Set For Best Week Since 2016, Alongside Wall St..
DJ
02/16LONDON MARKETS : FTSE 100 Rises, On Track For Strongest Week Since 2016
DJ
02/16EUROPE MARKETS : European Stocks Set For Best Week Since 2016, Alongside Wall St..
DJ
02/16LONDON MARKETS : FTSE 100 Rises, On Track To Break Weekly Losing Streak
DJ
02/15EUROPE MARKETS : European Stocks Finish Higher As Airbus, Commodity Shares Advan..
DJ
02/15LONDON MARKETS : FTSE 100 Closes Higher As Oil And Mining Stocks Rise
DJ
02/15Cyclicals, South Africa-exposed stocks help steady FTSE 100
RE
More news
News of the components of FTSE 100 INDEX
08:40aRECKITT BENCKISER : 2017 Pretax Up on Revenue Growth
DJ
08:37aASTRAZENECA : Cell Lung Cancer Treatment Imfinzi Gets FDA Approval
DJ
08:31aRECKITT BENCKISER : ends 2017 on higher note
RE
08:12aOLD MUTUAL : Change in director's details - Patrick O'Sullivan
PU
08:12aGKN : Form 8.3 - GKN PLC
PU
08:12aGKN : Form 8.3 - Melrose Industries PLC
PU
08:12aGKN : Form 8.3 - Melrose Industries plc
PU
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
TrendsBearishBearishBearish
Top / Flop FTSE 100 INDEX
NMC HEALTH 3481 Real-time Quote.1.66%
TUI 1554 Real-time Quote.1.64%
WM MORRISON SUPERMARKETS 220.8 Delayed Quote.1.33%
LLOYDS BANKING GROUP 68.35 Real-time Quote.0.92%
ASTRAZENECA 4782.75 Real-time Quote.0.91%
SEVERN TRENT 1727.5 Real-time Quote.-0.60%
RANDGOLD RESOURCES 6261 Real-time Quote.-0.71%
GKN 413.25 Real-time Quote.-0.78%
FRESNILLO 1386.75 Real-time Quote.-0.95%
RECKITT BENCKISER 6349.5 Real-time Quote.-3.33%
Heatmap :