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(Kitco News) - Gold prices are struggling against the British pound, a reflection of continued weakness within the broader market as the Bank of England continues to aggressively rate interest rates to combat stubbornly high inflation.
Thursday, the Bank of England announced that it raised the Bank rate to 5%, up from 4.50%. The move was more hawkish than expected as markets were pricing in a 25-basis point hike.
The aggressive move comes one day after data showed consumer inflation rising more than expected last month. The central bank also left the door open to further rate hikes to insure it gets inflation back to its 2% target.
“The MPC recognises that the second-round effects in domestic price and wage developments generated by external cost shocks are likely to take longer to unwind than they did to emerge. There has been significant upside news in recent data that indicates more persistence in the inflation process, against the background of a tight labour market and continued resilience in demand,” the central bank said in its monetary policy statement. “The MPC will adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit.”
The spot gold market is seeing some solid selling pressure in initial rection to the BoE’s monetary policy decision as prices test support just above £1,5000.
The weakness against the pound is in line with the broader market. August gold futures last traded at $1,935.80 an ounce, down 0.47% on the day.
Although the central bank has maintained a strong hawkish bias, some analysts note that markets do see a limit to interest rates. The market notes that the central bank remains close to its terminal rates following the outsized move.
