Sterling held firm against the dollar in early trade on Friday, moving slightly higher to end the week on a gain following a busy week on both sides of the Atlantic.
The pound is sensitive to any move by the Bank of England, even if it’s seen as favourable by markets. The latest 25 basis point rate cut on Thursday brought the base rate to 4% — but the way the monetary policy committee voted caught traders’ eyes.
“The Bank of England has struck a hawkish surprise. Market participants had braced for no more than a couple of dissenters in favour of no change, and it’s safe to say that the razor-thin 5-4 vote has turned a few heads,” said Matthew Ryan, head of market strategy at global financial services firm Ebury.
“As many as four of the committee opted for no change (Greene, Lombardelli, Mann and Pill), Taylor voted for a 50bp cut, while the remaining four favoured a 25bp move. This triggered an unprecedented second round of voting, during which Taylor shifted his vote to a 25bp cut.”
Governor Andrew Bailey also stressed his usual line that any further cuts will be “slow and gradual”.
“Sterling has posted modest gains, as investors slash bets in favour of additional cuts, with a November rate reduction now less than 50% priced in by swap markets,” added Ryan.
“This presents a double-edged sword, as while the prospect of higher rates for longer should buoy the pound, the limited appetite for policy easing risks inflicting further damage on Britain’s already fragile economy.”
The pound traded at around the $1.344 mark by 9.15am in London.