The EUR/GBP currency pair has been trading with considerable volatility following a strong recovery. Meanwhile, stocks in the FTSE 100 have experienced a drop after Bank of England Governor, Andrew Bailey, hinted at continued restrictive monetary policy.
FTSE 100 Stocks Drop After Bailey Speech
The UK’s FTSE 100 experienced a slight drop on Friday, yet it is still predicted to record weekly gains. This comes following a statement from Bank of England Governor, Andrew Bailey, which suggested a continued restrictive trend in monetary policy.
The FTSE 100, which is heavily reliant on commodities, recorded a decrease of 0.1%, while the mid-cap index FTSE 250 also saw a decline of 0.5%. Despite these dips, both indexes are expected to post their most impressive weekly performance in a month.
FTSE 100 Chart
Bank of England’s Monetary Policy
Governor Bailey indicated on Friday that the Bank of England’s future decisions on interest rates would remain stringent. This comes after last month’s decision to maintain borrowing costs, a decision that was reached by the narrowest of margins.
The yield on the UK’s benchmark bond increased slightly following Bailey’s comments but remained lower for the day at 4.402%.
Sectors Performance
In terms of sectors, precious metal miners led the pack with a 2% increase, as gold prices rose due to Middle East tensions and anticipation that U.S. interest rates may have reached their peak.
Industrial metal miners also saw a 0.6% boost due to an increase in copper prices. The mining sector was further bolstered by a weakening dollar and lower Treasury yields.
Major oil and gas shares saw a 1.4% increase as oil prices rose approximately $1 per barrel due to growing supply concerns. This was after Iran hinted at potential involvement in the Israel-Hamas conflict, which could lead to U.S. sanctions and impact global oil supplies.
The shares of oil giants Shell and BP increased by 1.1% and 2.2% respectively.
However, UK wealth manager St James’s Place saw its stock plummet by 13.5% to the bottom of the FTSE 100, following regulatory pressure to revise its fees.
Future Interest Rate Decisions
In a news flash, Governor Bailey warned that future decisions on interest rates will be “tight”. He acknowledged progress in combating inflation but emphasized that more work needs to be done, as UK inflation, at 6.7% in August, still exceeds the Bank of England’s 2% target.
Bailey confirmed that last month’s decision to hold rates at 5.25% was a close call, with a minority advocating for another rate rise despite concerns regarding the health of the UK economy. However, the majority opted for a pause after 14 consecutive rate rises brought borrowing costs to a 15-year high.
EUR/GBP Pair Trades Volatile After Strong Recovery, Manufacturing Data Contracts in UK
The EUR/GBP pair is currently experiencing a back-and-forth trading trend, following a significant recovery near 0.8650 during the European session. This recovery was fueled by investors’ interest triggered by the UK’s Office for National Statistics (ONS) reporting a contraction in factory data for the second consecutive month in August.
EURGBP Daily Chart
Bank of England Governor Andrew Bailey has reaffirmed that monetary policy will remain sufficiently restrictive, indicating that more work needs to be done despite progress in combating inflation.
On the Eurozone side, monthly industrial production grew at a faster rate of 0.6% in August, surpassing expectations of 0.1%. The previous month saw a contraction of 1.1% in economic data.
The annual industrial production data contracted by 5.1%. In terms of inflation, European Central Bank (ECB) policymaker and Bundesbank Chief Joachim Nagel projects a decline to 2.5% by 2025.
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