Share

Stocks climb, pound plunges after BoE stimulus

The Bank of England met on Thursday and voted 9-0 in favor of an interest rate cut.

Advertisement

The central bank said all the members of its Monetary Policy Committee agreed at a meeting on Wednesday that “policy stimulus was warranted at this time” and the interest rate should be reduced to 0.25%, the lowest level in the bank’s 322 years and the first cut since 2009.

The British pound traded at $1.3325, keeping some distance from its three-decade low of $1.2798 hit nearly a month ago, although currency markets may be somewhat ambivalent over how to react to the BoE decision – buy sterling if the BoE cuts, sell if it doesn’t, or vice versa?

A Bank of England plaque is seen at the bank in London, Thursday, Aug. 4, 2016.

The Dow Jones industrial average fell 2.95 points, or 0.02 per cent, to 18,352.05, the S&P 500 gained 0.46 points, or 0.02 per cent, to 2,164.25 and the Nasdaq Composite added 6.51 points, or 0.13 per cent, to 5,166.25. Compared to the “slowdown” in Europe, U.S. equities and investments are more attractive, if not by default.

“We’re living through a time of considerable uncertainty”, said BOE governor Mark Carney.

A strong report could offset concerns after last week’s weak report on second-quarter economic growth, while a poor report likely would be seen as further dimming the odds for a Federal Reserve interest rate hike.

The focus, however, remained squarely on the British pound in the wake of the widely-expected BoE decision.

Michael Hewson at CMC Markets said the British central bank may have overreacted to the Brexit shock, possibly without making much difference to the economic outlook.

Many market players also believe the BoE may resume its multi-billion-pound quantitative easing program of government bond purchases.

The US dollar was mixed against other currencies ahead of Friday’s US jobs report for July, expected to show the US added 185,000 jobs, down from 287,000 in June. “Carney said these banks had ‘no excuse” not to pass them on. The euro was steady at $1.1132 after losing 0.7 percent on Thursday. “That should be positive for the dollar”, said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

JAPANESE WAGES: Wage growth rebounded in June but the increase appeared to be too slow to achieve the Bank of Japan’s goal of generating 2 percent inflation.

Sterling crawled up 0.1 percent to $1.3120 after retreating 1.6 percent overnight.

The surprising BoE rate cut has dented the sterling, with a record-low of 0.25 percent.

The stimulus measures pushed up London’s FTSE 100 share index by 1.59 percent and pulled down the cost of borrowing for the government.

Economists expect the data to show the US economy added 175,000 jobs July, with the unemployment rate dipping to 4.8 percent from 4.9 percent.

Advertisement

The Australian dollar hovered near a 3-week high of $0.7641, awaiting the Reserve Bank of Australia’s monetary policy statement due later in the day.

BoE rate call looms, Asian shares firm as oil rebounds for now