Sterling inches higher after last week’s fall

By Harry Robertson

LONDON (Reuters) – The pound edged slightly higher on Monday after falling last week, as investors waited for new impetus from survey data on Thursday.

Sterling was last up 0.12% at $1.2615 after slipping 0.25% last week. U.S. markets are closed for the Presidents’ Day holiday, with trading volumes likely to be low throughout the day.

Meanwhile, the euro was 0.1% lower against the pound at 85.42 pence.

The single currency fell to a six-month low against sterling of 84.98 pence last week after UK wage data beat expectations, boosting the pound. But it then rose again when the pound fell after UK inflation figures came in lower than expected.

Chris Turner, global head of markets at ING, said currencies were likely to continue to be relatively quiet until central banks start cutting interest rates later in the year.

“Volatility in FX markets derives from volatility in interest rate markets, and because policy expectations are now sort of flat for the time being, we’re not getting that source of volatility.”

The survey-based purchasing managers’ index data, released on Thursday, will give a sense of the health of the UK economy in February.

Investors currently expect around 70 basis points of interest rate cuts from the Bank of England this year, down from around 110 at the start of February. They see a roughly 55% chance that the first BoE cut comes by June.

BoE chief economist Huw Pill said late on Friday that progress on inflation had so far been quite modest.

“I do think that we will have to wait several more months before we can be convinced that the squeezing out of the persistent component of inflation is there,” Pill said at a panel discussion hosted by the United States’ National Association for Business Economics.

Last week, data showed UK inflation held steady at 4% in January, defying forecasts for a rise, although remaining well above the BoE’s 2% target.

(Reporting by Harry Robertson; Editing by Bernadette Baum and Susan Fenton)