It was a fairly choppy day for the pound on Thursday as the UK currency initially weakened following the MPC’s interest rate vote but then clawed back the lost ground to end the day almost unchanged, hovering in the low 1.16’s against the euro and staying in the mid 1.28’s against the US dollar.
The pound took a hit after it was revealed that two of the nine members of the monetary policy committee had voted in favour of an interest rate cut. It had been expected that all nine members would vote to keep rates on hold so the unexpected result temporarily weakened the pound. MPC members Jonathan Haskel and Michael Saunders both voted for a cut, arguing that core inflation was subdued and persistent Brexit uncertainty was weighing on aggregate demand. As a result, the pound dropped around half a cent against the single currency.
The pound was also weakened by comments from the UK central bank, suggesting that growth over the next three years would be weaker than expected, owing to a global slowdown and the detrimental impact Boris Johnson’s Brexit deal would have on the economy. However, sterling then staged a recovery over the course of the afternoon after the Bank of England suggested that some of the Brexit uncertainty had lifted; “The Withdrawal Agreement and extension of the UK’s membership of the EU appears to have reduced Brexit-related uncertainty.”
As a result, the pound crept back up into the low 1.16’s against the euro to end the day almost unchanged. Against the US dollar, sterling was unable to claw back all of it’s losses on the day, closing in the mid-1.28’s.