Sterling Eyes Tentative Rebound After 3-week Losing Streak

LONDON (Reuters) -The pound edged higher on Monday, attempting to break a three-week losing streak versus the U.S. dollar as hawkish comments from Bank of England policymakers continued to support the currency.

Interest-rate setter Catherine Mann argued in a speech during afternoon trading that the central bank should raise rates faster than it has done so far because the pound’s weakness was adding to inflation pressures in Britain.

The BoE raised its benchmark interest rate by a further 25 basis points to 1.25% last Thursday and said it was ready to act “forcefully” if needed to stamp out dangers posed by inflation. Mann was one of three BoE policymakers who wanted a 50 bps BoE rate hike last week.

Investors are waiting for a series of economic indicators, including inflation data on Wednesday, to get a sense on how fast interest rates can rise without triggering a recession.

While the British government said on Monday it does not expect the economy to go into negative territory, the Confederation of British Industry warned last week that the economy faces stagnation next year and could easily fall into recession.

Markets are putting an 80% chance on a half-point rise in August and expect almost 100 basis points of tightening by September but these odds could move higher if inflation proves higher than expected.

“A number of factors point to pound weakness at the moment but supported Bank of England rate expectations have provided a floor for now, and the pound is stabilising at the centre of the 1.20-1.25 area,” ING strategists said in a note.

Against the U.S. dollar, the pound is up 0.13% at $1.2235 after three consecutive weeks of losses. It fell to a March 2020 low of $1.1934 last week.

Net short pound positions fell for a third consecutive week, according to latest positioning data, as some traders cut back on their bearish pound bets.

(Reporting by Saikat Chatterjee and Julien Ponthus; editing by Mark Heinrich, William Maclean)