The global gold market is seeing a modest uptick against the British pound after the Bank of England cut interest rates as inflation eases and the economy cools.
On Thursday, in a highly anticipated move, the BoE reduced its Bank Rate by 25 basis points to 5%.
The Bank of England is now the third major central bank to cut interest rates before the Federal Reserve, joining the Swiss National Bank, the Bank of Canada, and the European Central Bank.
The gold market is seeing a modest movement in FX markets. Spot gold last traded at £1,908.26, up 0.27% on the day.
Gold’s movement against the pound may be limited, as economists note that Thursday’s rate cut was a closer call than expected. The rate cut passed with a 5 to 4 vote.
This move comes as the central bank anticipates inflation pressures to remain elevated.
“The Committee expects the fall in headline inflation and normalization in many indicators of inflation expectations to continue feeding through to weaker pay and price-setting dynamics. A margin of slack should emerge in the economy as GDP falls below potential and the labor market eases further,” the BoE’s monetary policy statement said.
“However, there is a risk that inflationary pressures from second-round effects will prove more enduring in the medium term,” the statement added.
Michael Brown, Senior Research Strategist at Pepperstone, noted that while the bank is expected to continue cutting rates, the progress could be slower than expected.
“Beyond the immediate rate decision, the MPC’s forward guidance points to a relatively slow and steady path of further policy normalization, with the Committee continuing to emphasize the need for policy to remain restrictive for ‘sufficiently long,’ while also noting how risks to the inflation outlook are skewed to the upside,” Brown said in a note. “Governor Bailey also sounded a note of caution over cutting ‘too quickly, or by too much,’ likely disappointing some of the more dovish members of the MPC.”
Looking at the broader gold market, analysts have said that gold remains an attractive asset as global interest rates start to fall. With the BoE now entering a cutting cycle, the focus now falls on the Federal Reserve. Markets continued to fully price in a rate cut in September.
Source: Neils Christensen Kitco
