Sterling slips as currency markets weigh on tapered maturities

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* Chart: World exchange rates in 2020 http://tmsnrt.rs/2egbfVh

* Chart: Trade-weighted pound sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv

London, August 9 (Reuters) – The British pound edged down early in Monday, but was still close to its strongest against the euro since February 2020, with investors focusing on the possible pace of monetary policy tightening after the last Bank of England meeting. the week.

In recent weeks, the British pound has outperformed as COVID-19 cases have plummeted and high vaccination rates have allowed the UK government to lift most social distancing rules.

The pound has strengthened against the euro for the past three consecutive weeks and hit 84.7 pence to the euro on Friday, its strongest since February 2020.

At 8:01 a.m. GMT on Monday, the pound was down 0.1% against the dollar, at $ 1.38645. The dollar had hit a four-month high against the euro in Asian trade, extending Friday’s gains after a strong US jobs report prompted investors to advance their bets on the Federal Reserve by lowering its stimulus of the pandemic era.

Against the euro, it fell less than 0.1% to 84.76 pence per euro.

The Bank of England’s Monetary Policy Committee on Thursday voted 7-1 to keep pace with its government bond purchases, even though it expects inflation to climb to 4.0 % by the end of the year. But he also said that a “slight tightening” in monetary policy during his three-year forecast period would likely be necessary.

“The updated outlook and exit guidance from the Bank of England is essentially aligned with the market’s view that the time for take-off has been advanced, but the likely path will be relatively shallow,” the strategists wrote. of Goldman Sachs FX in a client note.

“We improve our forecast by EUR / GBP 3m and 6m to 0.85; we expect the currency to be particularly sensitive to incoming inflation and labor market data as the holiday scheme expires . ”

Speculators reduced their net short position in the British pound during the week of August 3, according to the CFTC’s weekly positioning data, leaving the overall speculative market position close to neutral.

Elsewhere, UK Business Secretary Kwasi Kwarteng has said Finance Minister Rishi Sunak is doing a fantastic job after a report in the Sunday Times that Prime Minister Boris Johnson may demote him.

“Sunak is seen as one of the Tory Party’s rising stars and a safe pair of hands in the Treasury, so any downgrade could briefly hit the pound,” the ING FX strategists wrote.

“Still, these are calm summer markets and FX traders will likely focus their attention on what new entries mean for the Bank of England’s hawkish new policy.”

The preliminary reading of UK GDP for the second quarter of the year is expected on Thursday. (Reporting by Elizabeth Howcroft; Editing by Anil D’Silva)


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