British Pound drops against its peers after BoE’s monetary policy decision

The British Pound (GBP) drops against its major currency peers after the Bank of England’s (BoE) monetary policy decision. The GBP/USD pair edges lower from its intraday high of 1.3405 to near 1.3380; however, the initial reaction from the pair was slightly positive.

 The BoE has kept interest rates steady at 3.75%, as expected; however, the number of Monetary Policy Committee (MPC) members voting for a hold remained lower-than-expected.

Six out of nine MPC members voted for a hold against estimates of seven, while three favored an interest rate hike of 25 basis points (bps). BoE members: Catherine Mann, Chief Economist Huw Bill and Megan Greene voted for a quarter-to-a-percent hike in policy rates.

The United Kingdom (UK) central bank has warned that the energy shock would keep volatility surrounding economic growth elevated. It could also lead to second-round inflation shocks if it remains persistently high. The BoE has clarified that Stands ready to act as necessary to ensure that inflation remains on track to meet the 2% target in the medium-term

Meanwhile, the US Dollar faces intense selling pressure in the European trade, with investors turning doubtful about whether the Federal Reserve (Fed) will raise interest rates this year to fulfill its commitment of bringing inflation down.

As of writing, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.15% lower to near 100.60. The USD Index has turned negative after giving back its early gains. During the day, the DXY gained 0.2% to near 101.00.

Dollar sentiment softens as FOMC signals muddled resolve on inflation

Analysts at ING describe “last night's FOMC press conference” as “a little confusing,” noting that the immediate market takeaway was that the Fed “was not going to be as tough on fighting inflation as initially thought.” In their view, investors inferred that policymakers “might try to wriggle through this period of high inflation without hiking,” reinforcing the sense of uncertainty around the Fed’s reaction function and contributing to a softer tone in Dollar and US rates pricing.

In the policy meeting on Wednesday, the Fed left interest rates unchanged in the range of 3.50%-3.75%, as expected, for the fifth time in a row.