Pound slides as UK rate hike prospect dims
The pound sank close to $1.40 on Friday after Bank of England Governor Mark Carney suggested that it was not guaranteed to hike its main interest rate next month.
“Carney put an end to the debate, saying that markets should not bet on a May rate rise,” noted Jasper Lawler, head of research at London Capital Group.
Markets had been widely pricing in a quarter-point interest rate hike in May, to 0.75 percent, amid a pick-up in UK wages growth, but British economic data this week, including a sharp drop in retail sales, has dampened those expectations.
“Prepare for a few interest rate rises over the next few years,” Carney told the BBC in an interview.
“I don’t want to get too focused on the precise timing, it is more about the general path.”
European equities advance
Meanwhile, Europe’s main stock markets rose across the board on Friday, with London’s benchmark FTSE 100 index profiting further from weaker sterling.
The FTSE index gained 0.5 percent as the pound weakness boosted share prices of multinationals listed in London which derive much of their earnings in dollars.
“The pound is slipping again this morning, after having suffered sizeable losses late on Thursday in response to Carney’s rather dovish comments,” added OANDA analyst Craig Erlam.
“While Carney did not deviate from the view that gradual rate hikes are going to be necessary, he did cast doubt on whether the next will come in May, which was heavily being priced in earlier this week.”
The British currency improved somewhat after Carney’s fellow BoE policymaker Michael Saunders hinted that he could vote for a hike in May.
Sterling had rallied at the start of the week to $1.4377, its highest post-Brexit vote level, on expectations of tighter borrowing costs.
In company activity Friday, Irish building materials group CRH topped the FTSE risers board, rising almost four percent on swirling speculation over a US listing and share buybacks, dealers said.
On the downside, British consumer health giant Reckitt Benckiser saw its share price dive more than five percent on a poor trading update.
And Shire Pharmaceuticals sank more than four percent as fellow Irish drugmaker Allergan ruled out a takeover counter-bid.
Japan’s Takeda has offered £42 billion ($60 billion, 48 billion euros) for Shire, or the equivalent of £46.50 per share, the group said Thursday.
In Asia, stock markets mostly fell Friday as investors struggled to maintain the previous day’s positive momentum following losses on Wall Street, with technology firms tracking a sharp fall in Apple.
While worries about the Syrian crisis and a potential China-US trade war keep dealers on edge, focus has for now moved to the corporate arena as the earnings season gets into full swing.
All three main Wall Street indices fell Thursday after a mixed bag of business reports with market giant Procter & Gamble posting lacklustre results, while rising US Treasury yields also spooked investors worried about higher interest rates.
But the big news was a near-three percent plunge in Apple, which came after major chip supplier Taiwan Semiconductor Manufacturing Co. (TSMC) forecast sales for the present quarter would be about $1 billion down on analyst forecasts.
This fuelled concerns that the smartphone sector, a massive driver of revenue for tech firms, including Apple and Samsung, was beginning to wane. The tech-rich Nasdaq lost 0.8 percent in New York.
Oil prices meanwhile remain at more than three-year highs, supported by continued Middle East tensions and signs of healthy US demand.
– Key figures around 1115 GMT –
London – FTSE 100: UP 0.5 percent at 7,363.67 points
Frankfurt – DAX 30: UP 0.1 percent at 12,578.29
Paris – CAC 40: UP 0.5 percent at 5,417.19
EURO STOXX 50: UP 0.4 percent at 3,501.39
Tokyo – Nikkei 225: DOWN 0.1 percent at 22,162.24 (close)
Hong Kong – Hang Seng: DOWN 0.9 percent at 30,418.33 (close)
Shanghai – Composite: DOWN 1.5 percent at 3,071.54 (close)
New York – Dow: DOWN 0.3 percent at 24,664.89 (close)
Euro/dollar: DOWN at $1.2308 from $1.2346 at 2100 GMT
Dollar/yen: UP at 107.63 yen from 107.37
Pound/dollar: DOWN at $1.4055 from $1.4087
Oil – Brent North Sea: UP 22 cents at $74.00 per barrel
Oil – West Texas Intermediate: UP 28 cents at $68.57