For pound traders, the Bank of England’s renewed hawkishness is outweighing any bad news emerging from the U.K. economy Sterling shrugged off the announcement that the country’s economic rebound ground to a halt in July, with the currency rising 0.3% to $1.3874 as of 11:22 a.m. London time.
It’s a symbol that any numbers on the U.K.’s rebound from the pandemic, especially those with a two-month lag, are secondary to signals from the financial institution . Governor Andrew Bailey told lawmakers on Wednesday that while growth was plateauing, he’s among officials who think a minimum criteria for tighter U.K. monetary policy has been met The BOE governor’s comments earlier in the week were a touch hawkish,” said Jane Foley, head of foreign-exchange strategy at Rabobank. “That said, tax hikes and softer data could change that.”
Money markets are betting the BOE will hike interest rates 15 basis points by May with a cumulative increase of 35 basis points expected by the top of next year. that might put it before the Federal Reserve System and therefore the European financial institution within the race to normalize policy.
The pound has been one among the worst performers within the Group-of-10 economies over the past month, rising just 0.3% against the US dollar and only outperforming the Canadian currency.
Neil Jones, head of foreign-exchange sales to financial institutions at Mizuho Bank, sees the pound breaking past $1.40 within the coming month and predicts signs of a recovery and investment pouring in from round the world.
“The road ahead won’t be without obstacles,” he said. “But overall my sense is that long-term corporate and investment money will find the U.K. a beautiful proposition for subsequent five years plus.”
Still, the economy now faces an uphill battle to realize the near 3% growth within the third quarter forecast by the BOE last month. which will require output to expand by around 1.9% on the average in both August and September.
Strategists see the pound trading little changed at $1.39 by year-end before rising to $1.40 by the top of the primary quarter, consistent with the median forecast from 76 firms surveyed by Bloomberg.
Moves in sterling after monthly GDP releases over the past year have attended be muted, said Lee Hardman, a strategist at MUFG. “We expect the GBP to offer back a number of its recent gains as BOE rate hike expectation are pared,” he added.