British Pound falls vertically after BoE leaves interest rates unchanged at 3.75%
- The British Pound gives back its early gains and drops to near 1.3375 against the US Dollar.
- The BoE leaves policy rates steady at 3.75% for the sixth time in a row.
- BoE Governor Bailey said that there is little evidence of material second-round inflation effects.
The British Pound (GBP) falls sharply against its peers after the Bank of England’s (BoE) monetary policy decision on Thursday. As of writing, the British currency gives back its early gains and turns marginally lower to near 1.3375 against the US Dollar.
Pound Sterling Price Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.10% | 0.12% | -0.42% | 0.06% | -0.32% | -0.47% | -0.09% | |
| EUR | 0.10% | 0.22% | -0.30% | 0.16% | -0.23% | -0.33% | 0.03% | |
| GBP | -0.12% | -0.22% | -0.54% | -0.05% | -0.45% | -0.55% | -0.18% | |
| JPY | 0.42% | 0.30% | 0.54% | 0.42% | 0.09% | -0.08% | 0.30% | |
| CAD | -0.06% | -0.16% | 0.05% | -0.42% | -0.36% | -0.50% | -0.11% | |
| AUD | 0.32% | 0.23% | 0.45% | -0.09% | 0.36% | -0.11% | 0.22% | |
| NZD | 0.47% | 0.33% | 0.55% | 0.08% | 0.50% | 0.11% | 0.40% | |
| CHF | 0.09% | -0.03% | 0.18% | -0.30% | 0.11% | -0.22% | -0.40% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
The United Kingdom (UK) central bank has kept interest rates unchanged at 3.75% for the sixth meeting in a row with a 6-3 vote split, as expected.
Three out of nine Monetary Policy Committee (MPC) members: Megan Greene, Catherine L Mann and Huw Pill backed a 25 basis points (bps) hike to push policy rates to 4%.
In the monetary policy statement, BoE Governor Andrew Bailey has repeated warnings that risks to inflation remain to the upside. Bailey added that the central bank might consider tightening the policy if “conflict in Middle East persists for extended period, as appears likely, and if risk of second-round effects increases”. However, Bailey clarified that there is "little evidence so far" of material second-round inflation effects.
Meanwhile, the US Dollar (USD) corrects after a three-day winning streak as investors digest the repricing of Federal Reserve (Fed) interest rate expectations.
As of writing, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.2% lower to near 100.15.
Strategists at NBC Economics reported that the updated dot plot points to “relatively broad support for more restrictive monetary policy for a significant period of time.” In their view, the Fed “doesn’t see a return to a 3.5% to 3.75% range until the end of 2029,” underscoring a higher-for-longer policy bias.
NBC’s team sees “a 4.25% upper bound target representing the peak of what could be a brief tightening cycle,” with the timing and scale of eventual cuts likely to be “dictated by the sustainability of the economic expansion (i.e., the AI boom).”
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
