Sterling Holds Firm Near Multi-Week High on UK Growth Hopes, Oil Price Moves
Market Overview and Key Drivers
By Samuel Indyk
LONDON, August 10 (Reuters) - The British pound was little changed against both the dollar and euro on Monday as markets awaited growth data later in the week and updates on talks in the Middle East to reopen the Strait of Hormuz.
Sterling Performance Against Major Currencies
Sterling was last up less than 0.1% against the dollar at $1.3502, just below a three-and-a-half week high of $1.35085 hit on Friday.
Against the euro, the pound was flat at 85.62 pence.
Upcoming UK Growth Data
Monthly growth figures, due for release on Thursday, are expected to show that the economy remained resilient in June, with the month's retail sales unexpectedly strong due to spending linked to the World Cup and hot weather.
Eyes on Oil Prices and Geopolitical Developments
Sterling traders were also keeping an eye on talks in the Middle East to reopen the Strait of Hormuz and any potential impact on energy prices.
Oil Price Movements
Oil prices rose slightly on Monday, due to continued uncertainty about the reopening of the strait. Iran said it was nearing a deal with Oman defining new shipping lanes but that the U.S. must meet other conditions.
Impact on Bank of England Policy
Expectations for Bank of England policy settings have tended to fluctuate with energy price movements, with higher oil prices and the feed through to inflation expected to lead to tighter monetary policy.
But so far, the BoE has decided to wait to see how the situation in the Middle East plays out, and refrained from tightening policy, unlike the European Central Bank, which raised borrowing costs in June.
Market Expectations and Analyst Views
Investors are now pricing in one rate hike from the BoE by the end of the year, with a second hike fully priced in by September next year.
Strategist Commentary
ING FX strategist Francesco Pesole believes that markets are pricing in too hawkish a rate path for the BoE, which could weigh on sterling if it was reversed.
"Our view on the pound is still bearish leaning on the back of our call for no rate hikes and markets still pricing in some tightening," said Pesole.
(Reporting by Samuel Indyk; Editing by Emelia Sithole-Matarise)
