Sterling Unchanged as Investors Await BoE Rate Decision and Inflation Data
Market Reactions and Expectations Surrounding BoE and Inflation
By Stefano Rebaudo
Federal Reserve Policy and Its Impact on Sterling
Sept 17 (Reuters) - Sterling was little changed on Thursday after the Federal Reserve policy meeting with investors awaiting the Bank of England rate decision later in the session.
The greenback climbed to a seven-week high after the Federal Reserve raised rates and reaffirmed its commitment to curbing inflation, though it later eased as energy prices extended their fall.
Bank of England’s Expected Actions
The Bank of England looks set to keep interest rates steady and slow the pace at which it offloads the government bonds it bought between 2009 and 2021.
Analyst Perspectives on BoE Policy
“That (a dovish hold by the BoE) will help support the pound although we remain sceptical of upside scope of any notable magnitude ahead of the UK budget on 28th October,” said Derek Halpenny, head of research, global markets, at MUFG.
UK Economic Indicators and Political Commentary
Prime Minister’s Response to Inflation Data
British Prime Minister Andy Burnham said he is ready to take the difficult decisions required to ensure the UK economy remains on track, after data on Wednesday showed a rise in inflation.
Sterling’s Performance Against Major Currencies
The British currency hasn’t shown much resilience to the dollar’s advance in the last few sessions, with the euro slightly up against the pound possibly on some positioning ahead of the BoE meeting.
Sterling was up 0.05% at $1.3387 on Thursday and was roughly unchanged against the euro at 85.70 pence.
Market Sentiment and Forward Guidance
Strategist Views on BoE’s Stance
“Unlike the ECB, we suspect BoE doves will hold their ground and stress that there is no evidence price pressures are extending beyond energy prices,” said Francesco Pesole, forex strategist at ING.
“We also see some risk that Governor Andrew Bailey himself pushes back against aggressive market pricing,” he added.
Inflation Trends and Rate Hike Probabilities
British inflation accelerated to a five-month high of 3.1% in August and was in line with forecasts by economists polled by Reuters, but measures excluding surging energy prices held stable.
Investors see a roughly 20% chance of the BoE hiking rates by a quarter point on Thursday. However, there is a 75% chance that two rate hikes will take place before the end of 2026, reflecting concerns about the risk of the jump in energy costs pushing up prices more broadly.
Prior to the Iran war, investors had been expecting the BoE to embark on a rate-cutting cycle this year.
(reporting by Stefano RebaudoEditing by)
