Pound slumps, Wall Street tumbles

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The pound slumped Thursday after the Bank of England flagged a possible recession and double-digit inflation, while Wall Street tumbled after having jumped the previous day on the Federal Reserve holding back on aggressively raising rates.

Meanwhile oil prices rose after OPEC+ only modestly hiked production targets.

The BoE's quarter-point hike was widely expected by the market, but the central's banks updated forecast for annual inflation to rise above 10 percent this year and the economy to contract later this year spooked investors.

The British pound plunged more than two percent after the BoE decision.

The drop in the pound was sparked by "the changes in the economic forecasts, which pointed to a potential recession by year end, and the warnings that rates may not rise as high as markets had been expecting in the months ahead," said market analyst Michael Hewson at CMC Markets UK.

The BoE said UK output was expected to contract in the final quarter of the year when inflation is set to enter double digits as household energy prices rise sharply, although the central bank doesn't forecast a full-blown recession for the moment.

"Uncertainty over inflation and growth puts rate setters in a tricky dilemma," said City Index analyst Fawad Razaqzada as it makes striking the right policy balance very difficult.

"So, the key risk facing the UK is not necessarily tighter policy, but uncertainty over monetary policy and, more to the point, stagflation," he added.

Central banks worldwide are raising interest rates, with inflation sitting at the highest levels in decades.

Prices are surging as economies reopen from pandemic lockdowns, and in the wake of the Ukraine war that is aggravating already high energy costs.

News that Turkish inflation soared to 70 percent in April highlighted the battle central bankers face in controlling prices.

The BoE's latest move follows a half percentage point hike Wednesday by the US Fed as inflation soars also in the world's biggest economy.

Wall Street's main indices had surged around three percent in response, relieved that the central bank wasn't moving more aggressively in steps that could cause the economy to slow.

But those gains were reversed on Thursday, with the tech-heavy Nasdaq Composite falling 4.6 percent in late morning trading.

In Europe, London managed to hold onto a marginal gain but both Frankfurt and Paris fell.

- OPEC+ decision -

Inflation has been dragged higher globally in large part owing to surging energy prices.

As expected, Saudi Arabia, Russia and other key oil producers in the OPEC+ group agreed to another marginal increase in output as they weighed tight supply concerns due to the Ukraine war against risks to demand amid coronavirus restrictions in China.

That sent oil prices jumping by more than three percent to firmly above $110 per barrel, but they later gave up most of their gains.

Traders on Thursday digested also earnings updates from some of the world's biggest companies.

Shares in Airbus soared around percent in Paris after the European aircraft maker said late Wednesday that its net profit more than tripled in the first quarter to 1.2 billion euros ($1.3 billion), despite the impact of sanctions against Russia.

The results confirm the company's recovery after the Covid-19 pandemic slammed the air travel industry in 2020.

Key figures at around 1530 GMT

  • New York - Dow: DOWN 2.9 percent at 33,073.60 points
  • EURO STOXX 50: DOWN 0.8 percent at 3,696.63
  • London - FTSE 100: UP 0.1 percent at 7,503.27 (close)
  • Frankfurt - DAX: DOWN 0.5 percent at 13,902.52 (close)
  • Paris - CAC 40: DOWN 0.4 percent at 6,368.40 (close)
  • Hong Kong - Hang Seng Index: DOWN 0.4 percent at 20,793.40 (close)
  • Shanghai - Composite: UP 0.7 percent at 3,067.76 (close)
  • Tokyo - Nikkei 225: Closed for a holiday
  • Brent North Sea crude: UP 0.7 percent at $110.87 per barrel
  • West Texas Intermediate: UP 0.3 percent at $108.12 per barrel
  • Euro/dollar: DOWN at $1.0506 from $1.0625 on Wednesday
  • Pound/dollar: DOWN at $1.2337 from $1.2632
  • Euro/pound: UP at 85.12 pence from 84.06 pence
  • Dollar/yen: UP at 130.39 yen from 129.05 yen
  • burs-rl/lc
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