Pound Lower Despite Big BoE Rate Hike

(RTTNews) - The pound retreated against its major counterparts in the European session on Thursday, despite a larger-than-expected interest rate hike by the Bank of England.

The rate-setting panel voted 7-2 to increase the bank rate by 50 basis points to 5.00 percent, the highest since 2008. Markets were expecting a quarter point hike.

Members said a half percentage point hike was warranted at the June meeting as the second-round effects in domestic price and wage developments generated by external cost shocks were likely to take longer to unwind.

The upside surprises in official wages and services inflation suggested that 50 basis point increase was required at this particular meeting.

Meanwhile, Swati Dhingra and Silvana Tenreyro preferred to keep the interest rate unchanged at 4.50 percent.

"If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required," the bank said.

The bank said it would adjust the interest rate as necessary to return inflation to the 2 percent target sustainably in the medium term.

The pound retreated to 1.2727 against the greenback and 180.73 against the yen, from an early 6-day high of 1.2841 and a 7-1/2-year high of 182.45, respectively. The pound is poised to challenge support around 1.24 against the greenback and 175.00 against the yen.

The pound touched 0.8635 against the euro, its lowest level since June 5. The pound is seen facing support around the 0.88 level.

The pound pulled back to 1.1375 against the franc, off an early high of 1.1459. This may be compared to its previous 9-day low of 1.1356. If the pound falls further, 1.11 is likely seen as its next support level.