Since the 2016 referendum, the two-year yield was down by the most since the Bank of England officials said that the government's proposed energy-price cap may curb inflation, potentially reducing the urgency of interest-rate hikes. Since 1985, the pound has fallen towards its lowest level since 1985.
Two-year yields - which are among the most sensitive to changes in monetary policy - fell as much as 25 basis points to a one-week low of 2.95%, while traders placed even odds on a 50 or 75 basis point rate hike when policy makers meet next week to set rates. It is an 80% chance of a three-quarter point increase as recently as Tuesday.
The cost of energy bills at current levels for consumers may have a downward effect on inflation in the short term, according to Huw Pill, BOE spokesman. The price growth accelerated to the fastest pace in 40 years last month due to rising energy costs fueled by Russia's war in Ukraine.
It felt like the market had got a bit ahead of itself in pricing in a high likelihood of a 75 basis-point hike next week, especially when we had heard so little from the Bank of England since the last meeting, said Imogen Bachra, head of UK rates strategy at NatWest Markets. I am not surprised at the front-end repricing in a certain way. In the wake of the Brexit vote, the yield fell six years ago as the Bank of England had to slash rates to cope with the market turmoil. After a 25 basis-point cut, officials held rates steady.
The pound fell by 0.9% against the dollar to $1.1417, close to the lowest level since 1985.
Valentin Marinov, head of the G- 10 FX strategy at Credit Agricole, said the pound is hurting in the wake of the BOE testimony to Parliament. Big Pharma Millions could be saved by none of a New Contaminant Found in Popular Drugs