Sterling’s weakness, including against the dollar, in turn lifted London stocks as it gives many exporting companies a shot in the arm, boosting their international competitiveness
NEW YORK (US): The British pound dropped to this year’s lowest point against the euro Thursday in reaction to the Bank of England cutting its forecast for the UK economy as it left interest rates unchanged.
Sterling’s weakness, including against the dollar, in turn lifted London stocks as it gives many exporting companies a shot in the arm, boosting their international competitiveness.
Stocks elsewhere were mixed, with the Dow edging to a record for the seventh straight day, while the S&P 500 and Nasdaq both retreated. Paris rose while Frankfurt fell as the euro continued to strengthen against the dollar.
Fawad Razaqzada, an analyst with Forex.com, said investors were disappointed that only two Bank of England monetary policy council members voted in favor of a rate hike — suggesting that such a move is now far off.
“The market’s reaction was swift: the pound fell sharply and this helped to boost the FTSE 100,” he said.
With political uncertainty, soft economic fundamentals and ongoing Brexit concerns weighing heavily on the British economy, “investors may start to question whether the BoE moves forward with raising rates in 2018,” said FXTM research analyst Lukman Otunuga.
Corresponding strength in the euro, meanwhile, weighed on Germany’s DAX index of leading stocks which was down at the European close.
“Euro strength is the worry of the moment,” Marco Bruzzon, deputy managing director at Mirabaud Asset Management, told AFP.
Paris, meanwhile, closed higher, helped by a rebound in banking stocks after Wednesday’s sell-off.
Dow holds 22,000
The Dow finished at 22,026.10, up less than 0.1% as US investors awaited the key July jobs report, which will be released early Friday.
Analysts expect the US added 181,000 jobs in July and that the unemployment rate ticked down a tenth to 4.3%. The report will be scrutinized as to whether it boosts the odds of an additional Federal Reserve rate hike this year.
The jobs report comes as the dollar continues to skid against the euro following a run of mixed US data.
“It is becoming increasingly difficult for investors to believe that (the Fed) will raise interest rates one more time this year,” said foreign exchange analyst Kathy Lien of BK Asset Management.
“The Fed’s hawkish bias is running on faith alone UNLESS Friday’s jobs report is unambiguously positive restoring the market’s confidence in the economy, the US dollar and the central bank.”