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London Markets: Pound falls near September lows as Bank of England surprise continues to reverberate

The pound fell near its September lows on Friday, as markets continued to digest the stunning implications of the Bank of England’s decision to keep interest rates at ultra-low levels.

The pound
GBPUSD,
-0.24%

traded at $1.3444, after ending Wednesday at $1.3684. On Sept. 29, sterling reached $1.3425, according to FactSet data. The U.S. jobs report did little to move the needle on the U.K. currency.

Traders were still trying to digest the stunning change in view from Bank of England Gov. Andrew Bailey, who in October discussed “very big and unwarranted price changes,” that its inflation forecast was going to go higher, and that “obviously, I am concerned with inflation above target.” A hawkish pre-decision interview from its new chief economist, Huw Pill, also puzzled traders since he also voting to keep interest rates unchanged.

Bailey protested to Bloomberg News that “I don’t think it’s our job to steer markets day by day and week by week.” He said, “we make a lot of conditional statements.”

Even the Bank of England’s own commentary was at odds with its decision. Marcel Alexandrovich at Jefferies pointed out the inflation forecast three years out is the highest it’s ever published. “In other words, the BoE has never sent such a strong signal that some tightening in policy may be required in the year ahead,” he said.

The FTSE 100
UKX,
+0.41%

rose 0.5% in afternoon trade, with travel-related stocks enjoying a solid day. International Airlines Group
IAG,
+4.36%

rose 2% as it said its operating cash flow as positive for the first time since the start of the pandemic.

News of a positive Pfizer trial of an oral antiviral, and a pickup in demand for international travel stocks such as Expedia and Airbnb, also helped lift companies such as engine maker Rolls-Royce
RR,
+6.17%

and GKN Aerospace owner Melrose Industries
MRO,
+3.67%
.

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