Bailey speech: Interest rates remain on a gradual downward path
Bank of England Governor Andrew Bailey reiterated on Thursday that a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate, per Reuters.
Key takeaways
"Monetary policy needs to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term has dissipated further."
"Monetary policy is not on a pre-set path."
"There remain two-sided risks to inflation."
"Interest rates remain on a gradual downward path."
"In recent months, the evidence that slack is opening up has strengthened, especially in the labour market."
"Uncertainties remain around the overall balance between supply and demand in the economy as well as the remaining inflation persistence in the system."
"We should recognise that the short-term pick-up in inflation introduces some further uncertainty into the near-term outlook for inflation."
Market reaction
GBP/USD showed no immediate reaction to these comments and was last seen trading at 1.3716, gaining about 0.4% on a daily basis.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
추천 기사
