Sterling Holds Steady as Volatility Drops Before US and UK Key Data Releases
Market Overview and Upcoming Economic Events
LONDON, Aug 11 (Reuters) - The pound drifted against both the dollar and the euro on Tuesday as uncertainty ahead of important U.S. and British data releases kept traders on edge, particularly given thin trading in the European summer.
Sterling was last at $1.3597 and 85.42 pence per euro, flat on both on the day, though towards the top of its recent range on the dollar.
Key Data Releases Impacting Currency Markets
US Consumer Inflation Data
The next big scheduled event for global currency markets is U.S. consumer inflation data due Wednesday, which will help guide expectations for Federal Reserve policy in the coming months, and with it the dollar.
UK GDP Figures and Political Context
The focus in Britain will be on Thursday's second quarter GDP figure, which will help illustrate the state of new British Prime Minister Andy Burnham's inheritance.
Market Sentiment and Trader Behavior
Reluctance to Place Large Bets
In the short term traders were reluctant to place large bets ahead of those events, adding to already muted currency markets.
Impact of Political Changes
So far the pound has been little affected by Burnham taking office last month. While that could be due to investors waiting for further details about the shape of his premiership, Deutsche Bank said in a Tuesday note that traders are not anticipating much in the way of moves ahead of Britain's budget scheduled for late October.
Volatility Expectations
They said the current level of euro/sterling three-month implied volatility, 3.6%, is lower than at the equivalent point ahead of any major UK budget or fiscal event in the past 20 years.
Implied volatility is the options market's estimate of future currency moves.
Analyst Commentary
"Despite the high likelihood of some twists and turns on the road to the first budget under new Chancellor (finance minister) John Healey and under Andy Burnham's premiership, the currency market remains very becalmed, and appears to be expecting few fireworks over the next quarter," analysts at the bank said.
(Reporting by Alun JohnEditing by Keith Weir)