Sterling falls to a 10-day low versus euro, flat against dollar

By Stefano Rebaudo

(Reuters) – Sterling fell to a 10-day low against a strengthening euro, with investors staying focused on the respective future monetary policy paths of the Bank of England and other major central banks.

BoE Monetary Policy Committee member Catherine Mann will speak in London at 1300 GMT, while other central bank speakers are gathered in Washington for the International Monetary Fund (IMF) and World Bank meetings.

The pound was down 0.7% at 83.63 pence per euro, its lowest since April 11.

“MPC members have sounded dovish on interest rates in recent weeks,” Enrique Diaz Alvarez, chief risk officer at Ebury, said. However, “the blowout inflation report for March, and a near certainty that the April print will be even higher, suggests that the bank won’t be able to hold the line for much longer.

The Bank of England last month softened its language on the need for more interest rate increases while stressing downside risks to the economy.

Last week’s data showed that British inflation leapt to its highest level in three decades. On Tuesday, the IMF forecast that Britain would face slower economic growth and more persistent inflation than any other major economy next year.

“Any hawkish overtones (from BoE officials) should be positive for the pound, whereas a repeat of recent rhetoric would be seen as a disappointment for markets and could trigger a bout of sterling weakness towards the end of the week,” Ebury’s Alvarez added.

Money markets are pricing in 150 bps of BoE rate hikes by year-end. [IRPR]

“In FX markets, the attitude of investors to trade the different intensity of tightening that major central banks will likely deliver over the course of the year remains the main theme,” Unicredit analysts said in a research note.

The pound was flat against the dollar at $1.3067, after less-hawkish remarks by Fed officials triggered some profit-taking on the greenback.

“GBP-USD is consolidating above 1.30, but interest to bring it much higher to around 1.31-1.32 remains light,” Unicredit analysts added.

(Reporting by Stefano Rebaudo Editing by)