Central banks hikes set sterling for biggest weekly drop since November

© Reuters. FILE PHOTO: A bank employee counts pound notes at Kasikornbank in Bangkok, Thailand October 12, 2010. REUTERS/Sukree Sukplang

By Joice Alves

LONDON (Reuters) – The pound fell on Friday against the euro and the U.S. dollar, setting it on track for its biggest weekly declines against the two currencies since early November after a raft of central bank interest rate hikes.

The Bank of England (BoE) delivered an expected half-percentage-point increase in interest rates on Thursday, its ninth in a row. But while the BoE was taking the view that inflation has now peaked, other central banks flagged they are far from finished with rate hikes.

The European Central Bank (ECB) raised interest rates and signalled more will follow. The U.S. Federal Reserve on Wednesday also increased interest rates by a half percentage point and said it will deliver more rate hikes next year.

“The BoE has struggled to support the pound with rate hikes this year,” said Jane Foley, head of FX Strategy at Rabobank London.

“Although this week’s meeting did not contain fresh quarterly economic forecasts, the recessionary backdrop painted by the Bank remains dour. At the same time, the Bank’s message this week was far less hawkish than that provided by the ECB.”

fell 0.2% to $1.2160 against the dollar, after briefly touching a nine-day low against the U.S. currency.

Versus the euro, the pound exchanged hands at 87.39 pence, 0.2% lower on the day, after falling as much as 0.5% earlier to a one-month low of 87.70 pence.

In a busy week for central bank decisions, the Swiss National Bank (SNB) and Norway’s central bank also hiked rates on Thursday.

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“UK rates certainly defied the widespread rise across Europe… Interestingly, the SNB will protect the Swiss franc a lot more than the BoE will protect sterling and that is why we see heading lower too,” Chris Turner, Global Head of Markets at ING wrote in a note to clients.

Against the Swiss franc, the pound was set for the biggest weekly decline in over one month, but was flat on the day at 1.1303.


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