BoE leaves rates steady

The British pound rises following the Bank of England's decision to maintain the interest rate

By Raed Alkhedr | @raedalkhedr | 2 November 2023

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  • The Bank of England kept key Bank Rate at a 15-year high of 5.25%

  • Three members of BoE vote in favor of raising the interest rate

Gold rises benefiting from the decline of the US dollar

Gold witnessed significant gains during Thursday's trading, benefiting from the decline of the US dollar and bond yields. This comes after the Federal Reserve decided yesterday to keep interest rates unchanged at 5.50%.

Gold in spot trading rose by 0.1% to levels of $1,984 per ounce, while gold futures increased by 0.3% to $1,993 per ounce.

Despite the dollar's gains yesterday following statements from Federal Reserve Chairman Jerome Powell, the overall tone of the bank was cautious about continuing the pace of monetary tightening and interest rate hikes. This led to the return of the US dollar's decline and a rise in gold once again.

The Federal Reserve emphasized the need to ensure a slowdown in inflation growth toward the desired levels before announcing the end of the monetary tightening cycle. Core inflation, as measured by the Consumer Expenditure Index, which is the preferred index of the Federal Reserve, stands at 2.4%, while the bank targets 2%. Ultimately, Powell stressed that economic data would be the determining factor in the bank's future actions.

Bank of England decides to keep the interest rate unchanged

In its meeting on Thursday evening, the Bank of England decided to keep the interest rate unchanged for the second consecutive meeting. The British pound rose immediately following the decision, and government bond yields returned to rise.

The Bank of England maintained the interest rate at 5.25% with no change, with a 6-3 vote in favor of keeping the interest rate unchanged. Once the decision was announced, the British pound experienced significant increases against most major currencies. Despite the interest rate remaining unchanged, the higher-than-expected vote in favor of a rate hike supported the currency.

The Bank of England lowered its expectations for GDP growth in the fourth quarter of 2023 to 0.1%, and it expects inflation rates to reach around 4.75% during the same period. However, the bank reduced its inflation expectations starting from 2024, aiming to reach the desired levels of 2% by 2025.

The Bank of England emphasized that current conditions do not warrant an urgent pace of monetary tightening, and the bank may need to ensure a slowdown in inflation growth before announcing the end of the current monetary tightening policy. Bank of England Governor Andrew Bailey emphasized that it is too early to consider lowering interest rates.

The British pound saw strong gains during today's trading, benefiting from the decline of the US dollar on one hand, following the Federal Reserve's decisions yesterday, and on the other hand, the British interest rate decision and the Bank's exclusion of the possibility of lowering interest rates or announcing the end of monetary tightening. The GBP/USD pair rose by 0.53% from levels of 1.2150 and is currently trading near 1.2220.