Jump in pound before Bank of England rate announcement prompts questions

A customer at a London market holds up a 20-pound note. PHOTO: AFP

LONDON (REUTERS) - Britain's markets watchdog will investigate a jump in the pound that occurred just before Thursday's (Jan 30) Bank of England's interest rate announcement, leading some in the market to ask whether any participants knew of the decision before it became public.

Sterling leaped a minute before the British central bank said it would keep interest rates on hold.

The BoE said it had asked the Financial Conduct Authority (FCA) to investigate what had happened. "We are aware of the incident and are looking into it," the FCA said.

Markets had been on tenterhooks before the BoE meeting, as money markets had seen equal chances of a 25 basis point rate cut or no change in British borrowing costs.

"There were a few gasps around the room when we saw the price jump quite aggressively," Simon Harvey, forex analyst at Monex Europe, a brokerage in London, said.

"We are not used to seeing a big jump beforehand and so it raised eyebrows," he told Reuters.

Not all analysts saw sterling's surge as suspicious, as thin liquidity before BoE decisions means a small number of orders can have an outsize impact on prices.

Neil Jones, head of FX hedge fund sales at Mizuho Bank said market gyrations in the seconds before major announcements were not uncommon, adding: "They are not always correlated with and predictive of the event."

However, sterling's move surprised some traders as it happened just before the BoE's 1200 GMT decision and was bigger than the reaction after the announcement.

Last year, the BoE said that a rogue supplier had been misusing audio feeds from its news conferences, giving traders access to potentially market-moving information seconds before rivals.

Harvey said he had seen large buy orders of more than £100 million for sterling futures seconds before the announcement.

The website for CME, the world's largest futures exchange operator, shows orders for 1,700 futures contracts, each carrying a nominal value of 62,500 pounds. These orders were the biggest by far placed in the hours before the announcement.

CME declined to comment.


Sterling had started the day weaker against the dollar in thin trading volumes, as is usual on days when the BOE meets.

But it inched higher in morning trade and at 11.59 GMT, it was at US$1.3024.

It then leapt half a cent to US$1.3075 in just under one minute, one second before the BOE statement at 1200 GMT (8pm Singapore time).

Sterling then extended gains, but the increase was much smaller, rising to US$1.3095 over the next 11 seconds.

The jump before the announcement was also visible against the euro.

By 1542 GMT, it was up 0.6 per cent at US$1.3099 and 0.4 per cent higher against the euro at 84.25 pence.

"A move like this is not an accident," said Marshall Gittler, chief investment strategist at ACLS Global.

"This must have been a big trade."

The mood towards the pound had begun to change during the morning, Jones said.

"There was a sense that some people were cutting shorts, shifting their expectations to a hold (in interest rates)."

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