BOE Cuts Rates, the Pound Drops, while US Treasuries Rally
The Bank of England (BOE) dropped its benchmark rate to record low 0.25% today, causing treasuries to rally along with global bonds, while the pound slid against its major peers after the BOE cut the key lending rate for the first time in more than seven years.
By Paolo Palazzi-Xirinachs
Thursday, August 4, 2016 - 00:00
The BOE cut growth forecasts by the most ever as policy makers unveiled a stimulus package aimed at containing the fallout from the UK’s secession vote. It is also injecting an additional 60 billion pounds, or $79 billion, into the economy through a bond-buying plan, and it will buy up to 10 billion pounds in British corporate bonds. The measures over all seemed to be more than most analysts had expected, causing stocks to rise and the pound to drop.
While the pound retreated, assets from the dollar to equities showed little reaction to the widely expected move, with investors turning attention to Friday’s report expected to show continued improvement in the US labor market. Sovereign debt from the UK to Germany and America advanced after the BOE delivered its “exceptional” stimulus package to stave off the effects of Brexit. Sterling dropped the most in three weeks, while credit markets strengthened.
In the US, the S&P 500 churned about 1% below an all-time high, while the dollar was confined to its narrowest band in more than a week. Crude rose past $41 a barrel, extending rebound from near four-month lows. The Dow Jones industrial fell 0.08%, and the S&P 500 rose 0.01%. The Nasdaq composite gained 0.17%.
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