Quantitative Easing

Pound rises further ahead of expected BoE rate hike

Wads of British pound sterling banknotes are stacked at the headquarters of the company Money Service Austria in Vienna, Austria November 16, 2017. REUTERS/Leonhard Foeger

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LONDON, Feb 2 (Reuters) – The pound rose on Wednesday for a fourth consecutive session, hitting a week-and-a-half high against the dollar, as investors held firm to their expectations that the Bank of England will raise interest rates. interest Thursday.

Investors have now fully priced a 25 basis point hike in the BoE’s main interest rate to 0.50% on Feb. 3 and economists polled by Reuters also expect that outcome from the meeting.

By late afternoon in London, the pound was up 0.36% at $1.3575, its highest level since Jan. 21.

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At 83.27 pence to the euro, the British currency was also approaching 83.07 pence, its best exchange rate against the common currency since February 2020.

Kit Juckes, head of FX strategy at Societe Generale in London, noted that the pound “struggled to cross” the 83 pence mark, a threshold crossed only a handful of times since 2016.

He argued that positive sentiment in stock markets was fueling currencies at risk against the dollar and that Thursday’s European Central Bank and BoE policy meetings are not currently expected to be a game-changer for currency markets.

However, both matches will be closely watched.

“Guidance provided by the ECB and BoE tomorrow will provide investors with an opportunity to reassess these policy expectations, suggesting the potential for a new direction for EUR/GBP,” reads a research note from Rabobank.

While the euro depreciated slightly against the pound, it gained against the dollar after data showed eurozone inflation hit a new record high last month, fueling bets that the BCE may need to raise interest rates sooner than expected.

The BoE was among the first out of blocks among its developed market peers to raise interest rates in December and money markets now expect a total of 100 basis points in rate hikes from the central bank this year.

With those hard-hitting rate expectations already priced in to the pound’s current levels, analysts believe the British currency could potentially extend its gains if policymakers adopt a more hawkish tone to rein in inflation.

Most economists polled by Reuters also believe the BoE will also signal its approach to start unwinding its 895 billion pound ($1.2 trillion) quantitative easing program. ECILT/GB

Currency markets continued to shrug off the latest developments in Britain’s political crisis over lockdown parties in Downing Street, with six Tory MPs publicly saying they were seeking a vote of confidence in the Prime Minister’s leadership on Wednesday. Boris Johnson. Read more

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Reporting by Julien Ponthus and Saikat Chatterjee; Editing by William Maclean and Paul Simao

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