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No rate hike expected from BoE

No rate hike expected from BoE

The markets largely overlooked the latest UK labour-market data and the inferred effect on monetary policy, preferring to focus on Omicron and any potential lockdowns. At first glance Sterling may have looked listless but was actually in the afternoon in the face of a sharp drop off in US equity markets.

The Pound held above 1.3200 to the dollar, floating around around 1.3220 while the Euro retreated to around 1.1740 from just below 1.1700.

The market now seems to expect the Bank of England to sit on their hands again at Thursday’s policy meeting, leading to a lesser chance of disappointment and consequently a lesser chance of further Sterling selling by hedge funds.

UK CPI inflation increased sharply to 5.1% for November from 4.2% previously, far exceeding forecasts of 4.7% and a 10 year high. The core rate (ex-fuel and food) also increased to 4.0% from 3.4%. The sharp rise in inflation will maintain pressure for a Bank of England rate hike and the Pound edged higher following the release, but was held just below 1.3250 against the dollar with the Euro around 1.1750.

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