Business

Sterling clobbered as jumbo rate hike raises risk of recession

Published

11 months ago

June 23, 2023

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Sterling clobbered as jumbo rate hike raises risk of recession

The pound fell on Friday, heading for its largest weekly loss in over a month on rising expectations the UK economy could slip into recession after the Bank of England delivered an outsized rate hike in response to persistent inflation.

The BoE on Thursday raised interest rates to their highest level since 2008, with a half-point hike that markets had anticipated, but that caught a number of investors off guard.

Money markets show UK rates could peak as high as 6% by the end of this year and stay there for another six months, given how entrenched inflation is becoming in the broader economy.

Meanwhile, a key market-based gauge of confidence in the economy fell to its weakest since early 2000, reflecting how investors are upping their bets on the UK succumbing to recession.

Sterling fell by as much as 0.5% on the day against the dollar to a low of $1.2685. It later recovered to trade down 0.4% at $1.2702, but was set for a weekly loss of nearly 1%, its largest since mid-May.

Sterling ticks up as investors poised for BoE interest rate hike

“What has been interesting has been the pound’s reaction. Normally, a G10 major central bank going for a jumbo rate hike, you’d expect a jump in sterling. But that fact that it’s come off is just a reflection of those fears,” City Index markets strategist Fiona Cincotta said.

“Fears of a recession are going to ramp up from now on and that is going to limit sterling’s potential, especially when you’ve got Fed Chair (Jerome) Powell sounding hawkish as well, so there isn’t going to be any respite coming from a weaker dollar.”

The pound fared more strongly against other currencies, rising 0.6% against the euro to 85.47 pence after data showed a surprise deterioration in euro zone business activity that could dampen expectations for the European Central Bank to keep raising rates.

Sterling was down 0.4% against the yen at 181.6 yen, having hit its highest since late 2015 against the Japanese currency this week.

Data earlier on Friday showed British retail sales unexpectedly rose in May, boosted by an extra bank holiday to mark the coronation of King Charles, but also suggesting most consumers were – for now – coping with high inflation’s squeeze on their spending power.

The resilience of Britain’s labour market has been another factor that has given the BoE very little room to relax its drive to bring inflation back towards its 2% target.

Analysts have said many consumers won’t feel the full impact of a string of rate rises yet because a high percentage of homeowners in Britain are on fixed-rate mortgages and will be sheltered from higher borrowing costs for longer.

A separate purchasing managers’ (PMI) survey on Friday showed Britain’s economy showed signs of slowdown this month, as inflation ran high.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said the PMI survey suggested the economy had lost momentum after a brief growth spurt in the spring and looked set to weaken further in the months ahead.

“Most notably, consumer spending on services, which was a core growth driver in the spring, is now showing signs of faltering,” he said.

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Chinese firm aims to expand investments in Pakistan, shows interest in mining sector

Published

2 days ago

May 17, 2024

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Chinese firm aims to expand investments in Pakistan, shows interest in mining sector

A notable Chinese company has expressed keen interest in expanding its investment in Pakistan, in yet another sign of investor confidence boost in the leadership of Prime Minister Shehbaz Sharif.

A delegation from Chinese firm MCC Tongsin Resources led by its Chairman Wang Jaichen called on PM Shehbaz here on Friday.

The premier invited the Chinese company to invest in Pakistan’s mining sector and manufacturing of export goods.

Shehbaz assured the delegation that his government would extend all-out facilitation to the company from minerals exploration and processing to the export of goods.

The PM instructed the relevant federal ministers and officers to continue consultation with the Chinese firm, taking the Balochistan chief minister, provincial departments and stakeholders on board.

The delegates reposed trust in PM Shehbaz’s leadership, and expressed keen interest in enhancing their investment in Pakistan’s mining and minerals sectors.

The delegation briefed Prime Minister Shehbaz about the construction of a mineral park in Pakistan and their future investment plans.

The premier welcomed the Chinese firm and highlighted the priority steps by his government to promote foreign investment in Pakistan.

He said that being a time-tested friend, China supported Pakistan in every difficult hour for which the Pakistani nation was grateful to the leadership and people of China.

Federal ministers Ahad Khan Cheema, Dr Musaddik Malik, Rana Tanveer Hussain, Jam Kamal Khan and relevant senior officers attended the meeting.

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Business

Govt jacks up power price by Rs1.47 per unit

Published

2 days ago

May 17, 2024

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Govt jacks up power price by Rs1.47 per unit

The government on Friday increased the electricity tariff by Rs1.47 per unit.

According to Nepra sources, the collection from consumers will take place in August, September, and October.

The electricity companies had requested the funds as part of the third quarter adjustment for 2023-2024, seeking Rs 31.34 billion under capacity charges.

Sources said that Rs5.57 billion were requested for operation and maintenance costs, and Rs12.38 billion were requested for the transmission and distribution impact under monthly fuel cost adjustment.

Previously, Nepra had completed the hearing on the electricity companies’ request under the quarterly adjustment.

Nepra approved the Power Division’s request, allowing an increase of Rs 1.45 per unit in electricity prices.

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Business

Hong Kong allows China’s digital yuan to be used in local shops

Published

2 days ago

May 17, 2024

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Hong Kong allows China's digital yuan to be used in local shops

Hong Kong will allow mainland China’s pilot digital currency to be used in shops in the city, the head of its de facto central bank said on Friday, marking a step forward for Beijing’s efforts to internationalise the yuan amid rising geopolitical tensions.

The programme, backed by Beijing, will allow mainland Chinese and Hong Kong residents to open digital yuan wallets via a mobile app developed by China’s central bank and will permit them to make payments in retail shops and some online stores in Hong Kong and in mainland China.

Transactions using e-CNY, predominantly for domestic retail payments in China, hit 1.8 trillion yuan ($249.27 billion) as of end of June 2023, with 120 million digital wallets opened, according to the latest disclosure from China’s central bank.

Using the wallet, users can make payments at over 10 million merchants in 17 provinces and cities in the mainland.

Each wallet used in the city will be subject to a balance limit of 10,000 yuan, with single transactions and daily payments capped at 2,000 yuan and 5,000 yuan, respectively, officials from the Hong Kong Monetary Authority said.

Peer-to-peer transfers will not be allowed at the moment, according to the HKMA.

“By expanding the e-CNY pilot in Hong Kong .. users may now top up their wallets anytime, anywhere without having to open a mainland bank account, thereby facilitating merchant payments in the mainland by Hong Kong residents,” HKMA Chief Eddie Yue said.

Currently, users of other digital yuan wallets such as those operated by Ant Group and Tencent can make payments in the city.

Industrial and Commercial Bank of China, Bank of China Ltd, China Construction Bank Corp and Bank of Communications Co have been selected as e-CNY wallet operators.

The yuan’s use in global finance remains low, though it has shown steady increases.

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