Bailey announced faster rate cuts, the pound fell!

7 時間前

The pound suffered its steepest fall in more than a year after Bank of England Governor Andrew Bailey hinted the boe could take a more aggressive approach to lowering interest rates.
Sterling fell more than 1 per cent against both the euro and the dollar on Thursday (Oct 3) after Bailey said the central bank could be "a bit more aggressive" and "a bit more aggressive" in cutting interest rates as long as inflation remains subdued. Traders are betting on a faster rate cut, denting the pound's appeal.

Bailey's comments, made in an interview with the Guardian, had a huge impact on markets as it has been assumed for months that the UK would lag behind other countries in terms of easing policy. Investors have piled into bullish sterling bets to take advantage of the spread, with hedge fund bets hovering near their highest levels since 2018, according to data from the Commodity Futures Trading Commission.

UK government bonds rose even as European and US bonds fell, with the yield on the UK two-year bond falling 4 basis points to 3.98%. The pound fell 1.1% to 0.8418 against the euro, its largest close since December 2022. The pound fell 1.1% to $1.3118, its biggest drop since March 2023.

Last month, UK officials voted to keep interest rates unchanged amid concerns about persistent price pressures in the services sector. Bailey himself called for a "gradual approach" to reverse the central bank's most aggressive tightening in decades.

But his latest comments encouraged traders to take a fresh look at the pace of UK easing, with money markets fully pricing in a 25 basis point rate cut in November and a 70 per cent chance of successive cuts in December, compared with only about 40 per cent on Wednesday.

A bearish bet

Hedge funds bet against the pound in the options market over the next month. The one-week ahead implied volatility for the pound against the dollar rose Thursday to its highest level since early January, a sign traders are seeking protection against wild swings.

Michael Metcalfe, head of macro strategy at State Street Global Markets, said: "If investors want to re-establish a short position on the pound, there is plenty of room now. That's the weakness."

Still, the pound remains the best-performing G10 currency this year, up about 3% against the dollar and euro, with some analysts skeptical about whether Bailey's comments will herald a dovish turn from the BOE.

The ECB is also expected to cut its policy rate later this month amid deteriorating business survey results, weakening price pressures and the Fed's shift toward accommodative policy. Eurozone policymakers have already cut interest rates twice this year, with markets pricing in a further 170 basis point reduction by the end of 2025, which would bring the deposit rate below 2 per cent.

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