Pound Set for Third Weekly Advance as Oil Prices Soothe Inflation Worries
Market Overview and Economic Influences
LONDON, June 5 (Reuters) - The pound edged up on Friday, set for a third weekly gain versus the dollar, ahead of major U.S. jobs data, as a steadier oil price encouraged investors to dip into more volatile currencies like sterling.
Oil Prices and Geopolitical Factors
With peace talks between the United States and Iran stalled and, in the absence of another round of hostilities, Brent crude futures held around $95 a barrel.
Investor Sentiment and Bank of England Outlook
The pound, along with the Australian and New Zealand dollars, got a boost from improved investor risk appetite, as well as from a Bank of England survey that suggested British businesses expect to raise prices less quickly in the year ahead then they did in April, as some of the initial energy price shock caused by the Iran war fades.
Sterling, which has edged up 0.1% so far this week against the dollar, was up 0.3% at $1.346. The euro was a touch weaker against the pound, drifting 0.1% to 0.8639 pounds.
Bank of England Policy Expectations
"This all helps cement another "on hold" decision from the Bank of England later this month. We know officials put a lot of faith in this survey. And it also questions the need to hike interest rates in general," ING strategists said in a note.
Money markets show traders expect no move from the BoE when it meets later this month, with the first rate hike expected around September and a roughly 50% chance of a second by year-end. A rate hike would normally boost the appeal of a currency, but with UK growth faltering and inflation picking up, higher borrowing costs stand to hurt the consumer and businesses.
Economic Data and Forecasts
UK Housing Market Trends
On the data front, British house prices unexpectedly fell by 0.1% in May, leaving them 0.5% higher than a year earlier, data from mortgage lender Halifax showed on Friday.
Economist Predictions
The median forecast in a Reuters poll of economists had predicted a monthly house price rise of 0.1% and an annual rise of 1.0%.
Upcoming U.S. Jobs Data
Key for investors will be the release of the monthly U.S. nonfarm payrolls report later on Friday, which is expected to show an increase of 85,000 in May, compared with a rise of 115,000 in April.
(Reoorting by Amanda Cooper; Editing by Louise Heavens)
