Friday, 31 July 2015 00:07
LONDON: Sterling hit a one-week high on a trade-weighted basis on Thursday, bucking a broad dollar rally on expectations that the Bank of England is likely to follow the US Federal Reserve in raising interest rates in the coming months.
The pound was the only major currency to remain steady versus the greenback on Thursday, which was boosted by data that showed US economic growth accelerated in the second quarter as consumer spending picked up, encouraging bets on a September US rate hike.
Those numbers followed a Fed statement late on Wednesday that left the door open for a September move which, if it comes, will be the first rise since 2006.
Recent data out of Britain has been robust, with consumer demand holding up well and the pace of growth accelerating in the second quarter, while BoE Governor Mark Carney has indicated a decision on rates will come around the turn of the year.
The Bank has said publicly that it does not have to wait for the Fed to hike rates.
But some market strategists reckon that behind closed doors it is concerned that if it were to raise rates first, the already-strong pound would appreciate further, hurting exporters and pushing down consumer prices.
Against the dollar, sterling was flat on Thursday at $ 1.5592 .
But against the BoE’s trade-weighted index it was at a one-week high of 94.3, just shy of a 7-1/2-year peak of 94.5 touched earlier in the month.
“We’re moving toward the Bank of England signalling that they need to be going pretty soon,” said Dedrek Halpenny, Bank of Tokyo-Mitsubishi UFJ’s European head of global markets research.
“The pricing in the market is more geared towards February of next year (for a UK rate rise) but I think there’s a realization that there’s definitely a risk that could be pushed forward if the Fed goes in September.” Against the euro, the pound hit a one-week high of 69,855 pence.
The single currency was weak across the board, with traders citing a Financial Times report that the International Monetary Fund cannot officially join Greek bailout talks until comprehensive reforms have been agreed.
The BoE’s monetary policy committee (MPC) meets next week, and for the first time will simultaneously publish its decision on interest rates, the vote count and a summary of the debate, and its quarterly forecasts for Britain’s economy, including inflation.
No interest rate change is expected, although the vote could show the first split among the nine-member MPC this year. Some are expecting that up to three members will vote in favour of an immediate rate increase.
“We anticipate a ‘hawkish’ surprise,” wrote BNP Paribas strategists. “It seems increasingly likely that there will be dissenting votes which would provide a strong boost for sterling. We recommend positioning for sterling strength ahead of the super-data day.”
