LONDON — The London and Frankfurt stock exchanges hit record highs Thursday as the Bank of England kept its interest rate at a 16-year high but raised hopes of a cut in the coming months.
Meanwhile, Wall Street rose following data showing a climb in claims for unemployment benefits that could raise the prospect of a US rate cut.
The British capital’s benchmark FTSE 100 index, which has been breaking records repeatedly in recent days, topped 8,390 points a couple of times during the day.
The DAX in Frankfurt came just shy of striking 18,700 points. The Paris CAC 40 also rose after falling earlier in the day.
READ: Bank of England edges closer to rate cut, possibly in June
The Bank of England kept its key rate at 5.25 percent for a sixth meeting in a row in efforts to tame inflation, mirroring a wait-and-see approach by the US Federal Reserve and European Central Bank.
UK annual inflation fell less than expected in March to 3.2 percent but BoE Governor Andrew Bailey voiced optimism that it would soon return to the central bank’s two-percent target.
“I’m optimistic that things are moving in the right direction,” he said.
His comments raised hopes that the BoE could soon cut rates. Its next meeting is in June.
READ: UK inflation falls to lowest level since late 2021 as food prices ease
“There is a cautious sense of optimism with analysts predicting we are edging closer to the first cut in interest rates since the pandemic, with the first cut potentially this summer,” said Richard Flax, chief investment officer at Moneyfarm.
The Bank of England also released its latest quarterly Monetary Policy Report, with forecasts for growth revised higher and the inflation outlook dropping below three percent, noted XTB research director Kathleen Brooks.
ECB seen to cut rates in June
“The economic backdrop has been given a good boost from this Monetary Policy Report, and that is reflected in the FTSE 100, which reached a fresh intra-day record high,” she told AFP.
While others are holding rates higher, Sweden’s central bank on Wednesday reduced borrowing costs for the first time in eight years and signaled more were in the pipeline.
The Riksbank decision was announced nearly two months after the Swiss National Bank became the first major Western central bank to move since the start of a global tightening campaign to fight inflation fuelled by Covid recovery and the Ukraine war.
READ: Sweden cuts key rate for first time in eight years
The ECB is expected to cut its rates in June.
But traders hoping for US Federal Reserve cuts have been on a rollercoaster ride this year as a string of forecast-beating inflation readings have forced them to chip away at their expectations.
The consensus is now about two cuts by January, against six estimated at the start of 2024.
But a rise in first-time claims for unemployment benefits, following a soft jobs report last week, bolstered hopes that rate relief is on the way.
“The key takeaway from the report is the jump in initial claims, which will be construed as a sign of softening in the labor market,” said Briefing.com analyst Patrick O’Hare.
“That view, in turn, will be construed as a possible trigger for a Fed rate cut in coming months,” he added.
Elsewhere, oil prices ticked higher as investors kept tabs on efforts for a ceasefire in the Middle East, even as Israel presses ahead with an assault on Rafah in southern Gaza.