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Sterling edges higher as economic outlook darkens rate view
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LONDON (Reuters) – Sterling reached more than two-week highs on Tuesday, but was confined in recent trading ranges as analysts assessed the prospect of a 50 bps rate hike by the Bank of England against the backdrop of a worsening economic outlook.
LONDON (Reuters) – Sterling reached more than two-week highs on Tuesday, but was confined in recent trading ranges as analysts assessed the prospect of a 50 bps rate hike by the Bank of England against the backdrop of a worsening economic outlook.
The BoE will likely shy away from a bigger interest rate rise in August and stick with the more modest 25 basis point increases it has been delivering, but it is a close call, a Reuters poll of economists found.
“BoE is priced for tightening like the Fed but with a far worse economic outlook than the United States,” said Francesco Pesole, a strategist at ING Bank in London.
“The worsening economic outlook will push the BOE to hold a less hawkish stance.”
Against the U.S. dollar, the pound touched its highest level since early July at $1.2090 as it moved from a March 2020 low of below $1.18 revisited this month. Versus the euro, the British unit was steady at 84.83 pence.
Latest positioning data show investors have consolidated their bearish bets on the pound at $4.3 billion, not far from a near two-year peak of $6.2 billion in May.
Market sentiment was also cautious ahead of a two-day Federal Reserve meeting on Wednesday, when investors widely expect the Fed to raise interest rates by another 75 bps.
(Reporting by Saikat Chatterjee; Additional reporting by Sujata Rao; Editing by Barbara Lewis)
The Bank of England is the central bank of the United Kingdom, responsible for issuing currency, maintaining monetary stability, and overseeing the country's financial system.
A rate hike refers to an increase in interest rates set by a central bank, which can influence borrowing costs and economic activity.
A basis point is a unit of measure used in finance to describe the percentage change in interest rates or other financial percentages, equal to one-hundredth of a percentage point.
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