Bank of England’s Aggressive Move
Gold prices are facing challenges against the British pound due to the broader market’s continued weakness. This comes as the Bank of England consistently raises interest rates to tackle stubbornly high inflation. On Thursday, the Bank announced that it raised the Bank rate to 5%, up from 4.50%, a more hawkish move than expected as markets were pricing in a 25-basis point hike.
Inflation and Rate Hikes
The aggressive move follows data that showed consumer inflation rising more than expected last month. The central bank has also left the door open for further rate hikes to ensure that inflation returns to its 2% target. The Monetary Policy Committee (MPC) stated that it will adjust the Bank Rate as necessary to bring inflation back to the target sustainably in the medium term, in line with its remit.
Impact on Gold Prices
The spot gold market is experiencing notable selling pressure in reaction to the BoE’s monetary policy decision, with prices testing support just above £1,500. The weakness against the pound aligns with the broader market, with August gold futures last trading at $1,935.80 an ounce, down 0.47% on the day.
Central Bank’s Hawkish Bias
Despite the central bank maintaining a strong hawkish bias, analysts note that markets do see a limit to interest rates. Observations indicate that the central bank remains close to its terminal rates following the outsized move.