British Pound and Bond Prices Rise as Jeremy Hunt Accelerates Tax Plans
Pound Sterling rose 0.7 percent against the dollar and the euro in early trading, after markets were cheered by government rhetoric on tax cuts, with the pound also trading mostly higher ahead of the British central bank’s interest rate decision, which is due on Wednesday.
The pound extended gains after the Bank of England’s rate decision but is now down 1.8 pence against the dollar, as the Bank of England announced plans to keep up its monthly rate of stimulus for the coming month and to add up to £30 billion ($39.8 billion) to the nation’s balance sheet while the British government is looking to reduce its deficit.
“The BOE was pretty positive,” says Peter Dixon, deputy head of trading at BGC Partners, the investment bank. “It is the first interest rate decision in over three years. The statement was as much about the Bank as the government. It’s a signal that the economy is healthy enough to support the bank rate.”
A strong job market and a record employment level helped lift the pound, but the Fed’s rate cut has also helped push up risk assets, which include the British Pound.
In the absence of an imminent fiscal cliff – the threat of automatic budget cuts and tax increases threatening the country’s fiscal stability – the pound has been trading in the last few months against other currencies. The British Pound rose 0.4 percent against the euro in October, and was also higher against the euro in December, just before the Fed announcement.
The pound rose against the yen in the aftermath of news that the United Kingdom had signed a deal that would allow it to retain its EU membership rights. Last week, a similar deal was signed between the UK and the European Union to ensure a free trade agreement.
“It’s a sign of confidence in the UK’s economy, the fact it’s growing,” says Stephen Innes, chief market strategist at CMC Markets. “The pound is strong as a result of the trade war, growth is good, and the EU is also very positive. It’s encouraging to see.”
The UK’s central bank, the Bank of England, in its monetary policy statement, said it