August 3 (Bloomberg) -- The pound erased earlier losses Thursday as the Bank of England raised interest rates and warned that efforts to quell inflation may require tighter borrowing conditions for a prolonged period. The yen was among top performers within the Group-of-10 currencies.
- GBP/USD was little changed after falling as much as 0.7% to 1.2621, its lowest since June 30
- “The bank will have to continue hiking, which will give GBP some limited upside over the next few months, but will probably level off before it can sustain any gains above that key 1.30 mark,” said Helen Given, an FX spot trader at Monex USA.
- “Ultimately we see the risk of economic damage as greater than the reward of an interest rate hike when thinking about GBP’s path through the remainder of the year”
- The pound initially “weakened post-decision as markets interpreted it as a ‘dovish hike’,” said Janet Mui, head of market analysis at RBC Brewin Dolphin. “That said, given the current high level of inflation and rather resilient economy, the BOE left the door open for further tightening”
- The Bloomberg Dollar Spot Index was little changed after advancing as much as 0.3%
- Federal Reserve Bank of Richmond President Thomas Barkin said the greater-than-expected easing in inflation in June may be an indication that the US economy can have a “soft landing,” returning to price stability without a damaging recession
- The mood is rapidly souring in the world’s biggest bond market, raising the stakes for Friday’s monthly US jobs data. A surge in long-term yields to their highest since November has left the Treasury market close to shedding all its gains for 2023
- EUR/USD traded near flat, between -0.2% and +0.2%, after euro- zone services PMI for July came in slightly weaker than a preliminary print
- USD/JPY slipped 0.5% to 142.56
- The Bank of Japan announced unscheduled debt-purchase operations for a second time this week
- “Two observations do not make a pattern, but for now, 5bp increments could be the BOJ’s tolerance for movements higher in the 10Y JGB yield,” said David Forrester, strategist at Credit Agricole CIB in Singapore. “Such a slow grind higher would help limit JPY downside against the USD in an environment of rising UST yields”
- AUD/USD rose 0.2% to 0.6550
- Australia expects to hear news within days on China’s four-month review of its punitive tariffs on Australian barley exports, Trade Minister Don Farrell said
Reporting By Naomi Tajitsu and Anya Andrianova With assistance from Ruth Carson, Wenjin Lv, Matthew Burgess
and Aline Oyamada.
