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LONDON, Oct 17 (Reuters) - Sterling slipped below $1.32 for the first time in four days on Tuesday after comments by Bank of England policymakers were interpreted by markets as broadly dovish.
The British pound fell half a percent on the day to as low as $1.3192, while ten-year benchmark bond yields fell 3 basis points to 1.31 percent, the lowest since Sept. 19.
“Comments coming out uniformly signaled a dovish and cautious stance among policymakers and indicated a growing debate internally on the path for interest rates forward,” said Neil Jones, Mizuho’s head of currency sales for hedge funds in London.
Members of the Bank of England’s interest-rate-setting committee were speaking to parliament’s Treasury Committee. For highlights, see
Silvana Tenreyro, external member of the monetary policy committee, said the upward pressure on inflation from sterling weakness will start to wane in the coming months.
Earlier on Tuesday, official data showed Britain’s inflation rate hit 3 percent, above the BoE’s 2 percent target but in line with expectations.
Much of the increase however has been caused by the fall in the value of the pound since last year’s Brexit vote which is likely to be a temporary driver of price increases.
Despite the drop in bond yields and sterling, market expectations from futures and swaps were broadly unchanged with interest rate markets still expecting about two rate hikes over the next twelve months.
Britain’s FTSE 100 - whose international focus tends to make it negatively correlated with sterling - rose slightly to a session high, up 0.2 percent.
Sterling was also the biggest mover in the crosses with the British currency declining against the Australian dollar and the Japanese yen. (Reporting by the London Markets Team)