Pound Falls After BoE Sees Lower Peak In Interest Rates

(RTTNews) - The pound drifted lower against its major counterparts in the European session on Thursday, after the Bank of England raised its benchmark rate by 75 basis points, but indicated that the peak in rates would likely be lower than anticipated by markets.

The nine-member Monetary Policy Committee decided to raise the bank rate to 3.00 percent from 2.25 percent.

The BoE expects the economy to shrink 0.5 percent in the third quarter of 2022 and by 0.3 percent in the fourth quarter.

The UK economy is expected to remain in recession throughout 2023 and the first half of 2024. GDP is expected to recover only gradually thereafter.

If the economy evolves broadly in line with the latest Monetary Policy Report projections, further rate increases may be required for a sustainable return of inflation to target, albeit to a peak lower than priced in by financial markets, the BoE added.

Final data from S&P Global showed that the UK service sector shrank in October for the first time since early 2021, as heightened political and economic uncertainty weighed on investment decisions and sentiment.

The Chartered Institute of Procurement & Supply services Purchasing Managers' Index posted 48.8 in October, down from 50.0 in September. This was the lowest score since January 2021 but above the flash reading of 47.5.

The pound showed mixed performance against its key counterparts in the Asian session. While it held steady against the euro and the franc, it dropped against the yen and the dollar.

The GBP/CHF pair touched a 9-day low of 1.1319. At Wednesday's close, the pair was worth 1.1415. The pound is seen finding support around the 1.12 level.

The GBP/USD pair fell to nearly a 2-week low of 1.1157. The pair had finished Wednesday's deals at 1.1389. If the currency drops further, 1.10 is possibly seen as its next downside target level.

The pound dropped to a 10-day low of 165.54 against the yen from yesterday's close of 168.39. Next key support for the currency is seen around the 161.00 level.

The pound depreciated to a 9-day low of 0.8729 against the euro from Wednesday's closing quote of 0.8618. The pound is likely to find support around the 0.89 region.

Data from Eurostat showed that the euro area jobless rate dropped to a record low in September after remaining stable in the previous four months.

The jobless rate fell to a seasonally adjusted 6.6 percent from 6.7 percent in August, which was revised up from 6.6 percent.