LONDON: Sterling jumped to December highs versus the euro and the dollar on Thursday after the Bank of England surprised investors by hiking interest rates, while the European Central Bank announced a reduction of its monetary stimulus.
Britain became the first G7 economy to hike rates since the onset of the pandemic, and the US Federal Reserve also signalled plans to tighten policy in 2022, while the ECB only slightly reined in stimulus.
Sterling was up 0.4% at $1.3319, while it rose 0.4% versus the euro to 84.85 pence.
It hit its highest levels since the end of November versus the euro and the dollar respectively, at 84.54 pence and 1.3375.
“Having first guided markets into betting on a rate hike in November, the Bank of England today defied market expectations again by finally pulling the trigger,” Berenberg’s economist Holger Schmieding said.
“We expect a further 25 basis point hike in February 2022 to take the bank rate to 0.5%,” he said, adding that his forecast for the UK rate at end-2022 was stable at 0.75%.
Several analysts had flagged that BoE could allocate more significance to the pandemic at its policy meeting, despite recent robust economic data.
Daily hospital admissions in Britain could soon hit a new high because the Omicron variant of the coronavirus is spreading so fast, piling pressure on a health service struggling with staff sickness, England’s Chief Medical Officer said on Thursday.
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