Pound falls, London stocks up after British rate rise

London - The British pound fell on Thursday after the Bank of England raised its key interest rate, as investors doubted that more monetary tightening is on the way soon.
Weakness in sterling, in turn, boosted London's main stock market index where exporters stand to gain from a falling currency.
British government bonds also rose as traders prepared for the Bank's monetary policy committee (MPC) keeping rates steady for the foreseeable future.

"A dovish rate hike from the Bank of England on Thursday has triggered a sell-off in the pound while yields on UK debt have also fallen," said Craig Erlam at OANDA.

"The impression that the MPC has given is this is a 'one and done' rate hike," Erlam said.

'Opposite reaction'

Earlier, Bank of England policymakers voted 7 to 2 to tighten borrowing costs to 0.50% from a record low of 0.25%, as a weak pound caused by Brexit uncertainty has hiked the cost of imports into Britain and in turn sent the country's inflation rising far above the BoE's target.

"Under normal circumstances, such an auspicious event would have immediately elevated sterling and boosted sentiment towards the UK economy, however, we are seeing a completely opposite reaction," noted Marianna Sofocleous at FXTM.

"With the central bank cautioning that future rate increases will be 'at a gradual pace' and to 'a limited extent', this is clearly a dovish hike which has raised questions over the future path of interest rates beyond November," she said.

But there were dissident opinions on the future rate trajectory, with analyst John Higgins at Capital Economics suggesting that further hikes may turn out to be less gradual and limited than many believe.

"We continue to think that the markets are underestimating how quickly rates will rise in the UK," he said. "We think that UK monetary policy will provide some renewed support to sterling before long."

Next hike in US?

Other European stock markets were modestly weaker at the close, while Wall Street traded a touch firmer around mid-session in New York.

In the United States, eyes are now on President Donald Trump's choice to replace Federal Reserve chief Janet Yellen, with the smart money on the governor of the central bank, Jerome Powell, to succeed her.

Investors were looking also to the imminent US House Republicans' tax reform announcement.

As expected, the Fed on Wednesday kept US interest rates unchanged as it reported that the world's biggest economy was growing at a "solid pace".

That statement solidified the view the US central bank is likely to raise interest rates in December, in turn boosting the dollar.
On the corporate front, the world's biggest company, Apple, was due to release earnings on Thursday.

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