FTSE Falls Amid Stronger Pound As Bank Of England Increases Interest Rates
Feb 03, 2022
On Thursday, the European equity market fell into the negative territory as investors processed the Bank of England's decision to raise interest rates from 0.25% to 0.5%.
The FTSE 100 finished 0.7% down on the day in London, weighed down by a slightly stronger pound, while the CAC sank 1.3% in Paris, and the DAX fell 1.4% in Frankfurt.
The Monetary Policy Committee (MPC) decided 5-4 to raise rates by another 25 basis points after raising rates from historically low levels of 0.1% to 0.25% in December.
The rate increase is the second since the COVID-19 crisis began, and it is the first consecutive raise since 2004.
The pound recovered some of its losses versus the dollar as a response to the news, rising as high as 0.4% to $1.3623 before falling once more. It was also 0.3% higher versus the euro, trading at €1.2031.
In other news, the European Central Bank agreed to keep interest rates at a historic low of 0%, ignoring growing euro inflation pressure.
The central bank maintained its deposit and primary refinancing rates at -0.5% and 0%, correspondingly, in a highly anticipated announcement.
It also said that interest rates would not be raised until predictions suggest that inflation will remain stable at 2% for the foreseeable future. The central bank also reiterated its commitment to decreasing asset purchasing throughout the year.
By the moment the European market closed, the S&P 500 had down 1.3%, and the tech-heavy Nasdaq had fallen 2%. The Dow Jones Industrial Average fell 0.7%.
On Wednesday, American stock markets closed stronger for the fourth day in a row. At the same time, Facebook parent firm Meta Platforms fell 23% in after-hours trading as its newest quarterly profits fell short of Wall Street projections.
When the market opened on Thursday, Mark Zuckerberg's personal worth dropped by about $24 billion (£18 billion) as the shares sank 26%.
The social media company announced that earnings fell by 8% to $10.3 billion in the fourth quarter of 2021, despite sales increasing by 20% to $33.6 billion. Instead, users tended to spend more time on competitors such as TikTok.
With a string of aggressive price target reductions yesterday night, Facebook, once the favorite of the IT industry, has lost favor with investors, according to Victoria Scholar, head of investment and Interactive Investor.
"As rivalry for eyes heats up and Facebook users shift to services that are more difficult to monetize, such as Reels, the corporation has a difficult road ahead.
"After the indiscriminate rises of the previous 22 months, the atmosphere has evolved into a stock pickers market as investors choose the winners from the losers, and Meta seems to be struggling to win in the end."
On Thursday, Asian stocks were mixed as the latest round of firm earnings releases put traders in a purchasing mood.
The Nikkei in Japan dipped 1%, while the Kospi in Seoul rose 1.7%, following up on previous rises abroad when South Korean markets reopened after the vacations. Singapore's benchmark rose 1.9% on the day as well.
China's markets were closed for the Lunar New Year vacation.