LONDON: Sterling fell sharply against the euro after jumping to a two-year high on Thursday as a rate hike from the Bank of England failed to keep the British currency afloat after a meeting of the European Central Bank.
The pound jumped 0.5% versus the euro after the BoE raised its benchmark interest rate to 0.5% to contain rising inflation. But a couple of hours later, the pound fell to its lowest level in nine days versus the single currency after ECB President Christine Lagarde spoke.
Speaking after the ECB kept its policy unchanged, Lagarde acknowledged that euro zone inflation was running hotter than expected, adding that raising interest rates this year was “very unlikely” but left the door open for further assessment.
She had previously argued that inflation would soon abate without intervention.
“It was less than surprising that the GBP bounce proved short-lived. With the ECB underlining that the situation has changed, allowing the market to further accelerate euro area rate expectations,” said Jeremy Stretch, head of G10 FX strategy at CIBC.
Sterling fell 0.7% versus the strengthening euro to 83.88 pence by 1540 GMT. At 1200 GMT, it had touched a two-year high of 82.85 pence versus the euro after the majority of the nine members of the Monetary Policy Committee voted for a 0.25 percentage point increase.
Four of the nine MPC members wanted to raise interest rates by half a percentage point to 0.75%.