The pound fell and the FTSE 100 flirted with record highs yesterday as the Bank of England hiked interest rates but signalled that they were now at or near their peak.
Sterling slipped by more than a cent against the US dollar to above $1.22 as rate-setters dropped recent language about acting ‘forcefully’ to bring down inflation.
The FTSE 100 was buoyed by the heavy hint that Bank rate may not have much further to rise, ending the session at just over 7820 points, only 57 short of its all-time closing high.
It joined a rally of global stock markets, which have been cheered by hopes that a painful series of hikes in Britain, the US and Europe may be drawing to a close.
In America, the US Federal Reserve increased interest rates by a quarter of a percentage point – a slowdown from previous half-point and three-quarter point rises.
Pound hit: Sterling slipped by more than a cent against the US dollar as the Bank of England hiked interest rates but signalled that they were now at or near their peak
Federal Reserve chairman Jerome Powell said more hikes would be needed to make sure inflation was being tamed but markets seized on his remark that ‘the disinflationary process has started’.
That gave a boost to Wall Street and especially its giant tech stocks – bombed-out last year as rates rose – as traders bet on the Fed becoming less aggressive in terms of interest rate hikes.
The tech-heavy Nasdaq shot 2 per cent higher on Wednesday in the wake of Powell’s comments and shot a further 3 per cent higher yesterday.
In London, Bank of England Governor Andrew Bailey said Britain now seemed to have ‘turned the corner’ on inflation, which has slipped back after hitting 11.1 per cent last October, and the Bank now thinks it is past its peak.
Bailey made clear that the watering down of the Bank’s language about further rate hikes was significant.
He said: ‘We’re going to take each game as it comes and look at the evidence very closely as we do and see what we conclude from that.’
Meanwhile the European Central Bank (ECB) hiked rates by half a percentage point yesterday and signalled at least one more rise of the same magnitude next month.
Its president, Christine Lagarde, said the risks posed by inflation were becoming ‘more balanced’ but insisted ‘we are not done’ with increases.
But Carsten Brzeski, head of macro at ING Bank, said the ECB was ‘opening the door to either a pause or a slower rate hike pace beyond March’.
Germany’s Dax stock index rose by more than 2 per cent and France’s Cac 40 climbed more than 1 per cent.
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