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Sterling flat against euro ahead of BoE speaker

Sterling was flat against the euro not far from a 1-1/2 month low on Wednesday, while investors await a speech by a senior Bank of England official later in the day.

The pound fell sharply against the single currency last week after the ECB’s unexpected hawkish shift boosted euro zone yields, overshadowing the Bank of England’s move of raising rates by 25 basis points.

Bank of England Chief Economist Huw Pill, who will give a speech at the annual conference of Britain’s Society of Professional Economists, “was one of the majority five Monetary Policy Committee (MPC) members voting for just a 25bp hike last week”, ING analysts said.

“We think the BoE will welcome the role the strong pound sterling is playing in deflecting some of the energy price surges – and see no reason for the BoE to start railing against aggressive pricing of the BoE trajectory,” they added.

The pound was flat against the euro at 84.22 pence within striking distance of its post-ECB low at 84.74 pence.

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Money markets are still pricing in a 25 bps rate increase in March and 125 bps by December 2022, but some analysts have warned about the risks of excessive expectations.

They noted that Bank of England Governor Andrew Bailey said last week not to take for granted the BoE was embarking on a long series of rate hikes, while the BoE’s downward revision to inflation forecasts assumed interest rates at 1.5% by mid-2023.

The pound rose 0.2% versus a slightly weakening dollar to $1.3576.

The dollar stayed in a holding pattern a day before the release of U.S. consumer price data that may offer new clues on the pace of Federal Reserve policy tightening.

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Investors will also be monitoring political developments as Prime Minister Boris Johnson fights for his political survival.

On Tuesday, he reshuffled some ministers in his administration to appease his lawmakers, angered by a series of scandals.

“Even without a major change in the policy direction, the replacement of the UK prime minister with a less erratic and gaffe-prone alternative would a be positive for UK risk markets and sterling,” said Kallum Pickering, senior economist, director at Berenberg.

“While the risks may be tilting towards a scenario where Johnson somehow manages to cling on as prime minister, it remains more likely than not that the Conservatives will try to replace him soon, in our view,” he added.

Reporting by Stefano Rebaudo

Source: UK Reuters

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Sterling edges up despite cooling UK economic data

Sterling was on track on Friday for weekly gains against the dollar and euro to start 2022, despite a mixed picture emerging for Britain’s economy.

The currency has strengthened since mid-December in part due to the Omicron variant of COVID-19 proving less disruptive to the economy than originally feared, analysts have said, with the government only lightly tightening restrictions so far.

Sterling was heading for a 0.4% gain versus the dollar for the week and 0.6% up against the euro.

On the day, the pound was up 0.3% versus the dollar at $1.35720.

Sterling’s gains partly reflected a weaker dollar across the board, after a December U.S. jobs report missed expectations.

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Against the euro, the pound fell 0.2% to 83.585 pence per euro.

Economic survey data this week showed Omicron has had an impact. Survey data for Britain’s construction sector on Friday showed growth cooled in December, falling to a three-month low.

A similar Purchasing Managers’ Index (PMI) survey for the services sector on Thursday showed the biggest loss of momentum since the country was last in lockdown, falling to a 10-month low in December.

The pound has nonetheless broadly maintained momentum versus the dollar, rising from a one-year low of $1.31615 hit in December.

Investors will closely watch to see if the Bank of England will further tighten policy, with a further interest rate rise expected as early as next month after a surprise hike in December.

Source: Reuters

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Sterling sinks to 5-month low as investors seek safety on “Freedom Day”

The British pound hit its lowest since February on Monday as global markets turned cautious over a surge in coronavirus infections, meaning that riskier currencies lost out to the safe-haven dollar.

Risk-aversion ruled the day as bond yields dropped and stocks faced their longest losing streak since the pandemic first hit global markets 18 months ago.

The wary moves coincide with Prime Minister Boris Johnson lifting most COVID-19 restrictions in England in what some have dubbed Freedom Day. Johnson has urged the public to remain cautious as infections in Britain are surging.

Last week, the pound had its worst week in a month versus the dollar. The downward turn continued on Monday with sterling hitting $1.3663 at 1455 GMT, its lowest since Feb. 4.

At 1511 GMT, cable was down 0.6% on the day at $1.36795. Versus the euro, the pound was down 0.6% at 86.3 pence.

Neil Jones, head of FX sales at Mizuho, said that the losses in the pound were caused by investors liquidating their long positions.

“The pound was one of the real darlings of the foreign exchange market for a number of months now,” he said, citing Britain’s speedy vaccine rollout as a driver of gains earlier in the year.

“Since that time there have been developments, some doubts… Market participants would not argue with the success of the vaccine because it has been highly successful but just the variant data does seem to be surging on a global basis.”

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The pound’s status as a risk-sensitive currency means that it faces the potential double whammy of being hurt by rising COVID-19 infections globally, and in the United Kingdom specifically, he added.

Britain has the seventh highest death toll in the world and is forecast to soon have more new infections each day than it did at the height of the second wave of the pandemic. But it is ahead of its European peers in terms of vaccine rollout.

“I think the pound is basically being influenced by general risk appetite as opposed to anything specifically geared towards the UK itself,” said Ned Rumpeltin, head of European currency strategy at TD Securities.

Positioning data showed that speculators’ net long position on the pound – bets that the pound will strengthen – was cut to its smallest since January 2021, in the week to July 13.

CFTC https://fingfx.thomsonreuters.com/gfx/mkt/jznvnojaypl/CFTC.png

Last week, two top Bank of England officials surprised investors by suggesting monetary policy might be tightened sooner than expected.

But BoE interest rate-setter Jonathan Haskel said on Monday reducing stimulus was not the right option for the foreseeable future, despite rising inflation.

By Elizabeth Howcroft

Source: Investing

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Sterling rises to two-week high against the dollar

Sterling rose to hit a two-week high against the dollar on Monday at the start of a data-heavy week that is expected to provide more evidence that Britain’s economy is rebounding from its deepest recession in 300 years.

The pound had a strong first quarter, supported by dwindling expectations of negative interest rates and by a fast roll-out of vaccinations against COVID-19 across Britain.

As England re-opened shops, hairdressers, gyms and pub gardens in April, analysts expect a faster economic recovery in the United Kingdom than in the European Union, which is facing a third wave of infections.

Traders will be watching PMI surveys for the UK, together with data on the labour market, inflation and retail sales this week.

Both ING and UniCredit analysts told clients there was scope for sterling to strengthen to $1.40 this week.

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“GBP continues to find support on dips and it seems like investors are happy enough staying positioned for the 2Q UK re-opening story,” said Chris Turner, Global Head of Markets at ING.

“Today we have already seen some encouraging April Rightmove house price data,” he said.

Advertised prices for homes in Britain hit a record high after finance minister Rishi Sunak stoked the market again by extending a tax cut for home-buyers last month, property website Rightmove said on Monday.

Speculators’ net long position on the pound versus the dollar rebounded in the week to April 13 after slipping to its lowest since February in the previous week, futures data from CFTC showed.

Versus a weakening dollar, the pound rose 0.4% to $1.3900 at 0958 GMT, its highest level since April 6. It was 0.1% lower versus the euro at 86.61 pence, after it hit its highest of 86.30 pence since April 8.

“Current domestic COVID data is encouraging and a further easing of lockdowns will all point in the direction of the UK economy early out of the block on economic recovery expectations,” said Neil Jones, Head of FX Sales at Mizuho Bank.

Source: ZAWYA

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Sterling jumps following BoE’s decision to hold interest rates

The pound rebounded this afternoon as the Bank of England announced it would leave interest rates unchanged.

The currency saw its biggest fall in three weeks this morning as traders nervously waited to see whether the BoE would formally endorse negative interest rates.

The Prudential Regulation Authority’s analysis found the UK would need six months to prepare for negative rates as anything sooner would risk incurring “increased operational risks”.

The bank’s Monetary Policy Committee (MPC) unanimously voted to keep rates at 0.1 per cent and its bond-buying programme at £895bn.

Sterling welcomed the central bank stepping back and returned cable to $1.367 while two-year yields jumped from 0.1 per cent to 0.05 per cent.

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Against the euro it moved from a 0.2 per cent decline to a 0.6 per cent rise to reach a nine-month high of €1.141.

“This was primarily because traders know that negative interest rates are not going to become a reality,” Naeem Aslam, Ava Trade’s chief market analyst. “This particular fact was holding Sterling from further appreciation. Now, it is pretty much clear that negative interest rates are not going to come into daylight. Hence the path of the least resistance for the Sterling is skewed to the upside.”

But the bank did not rule out negative rates entirely, hinting they could be used in the future should conditions warrant them.

In a statement the BoE said it was expecting a rapid recovery in GDP towards pre-pandemic levels in 2021, led by the UK’s vaccination programme. However it cautioned the outlook for the year remains “unusually uncertain”.

“It depends on the evolution of the pandemic, measures taken to protect public health, and how households, businesses and financial markets respond to these developments”, the nine-strong MPC added.

By Angharad Carrick

Source: City AM

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Sterling struggles to regain 2-1/2-year peak as new lockdown weighs

The British pound steadied on Tuesday but held well below a more than 2-1/2-year high of $1.37 hit in the previous session, as a new lockdown deflated optimism from a post-Brexit trade deal with the European Union.

Prime Minister Boris Johnson ordered England into another national lockdown to contain a surge in COVID-19 cases that threatens to overwhelm parts of the health system before a vaccine programme reaches a critical mass.

The new measures, which could cost about 10% of economic output for as long as they last according to some analysts, deflated any lingering bullishness around the British currency and sent it tumbling 1% from its highest levels since May 2018.

“The pound has failed to display much of a relief rally in the wake of the pre-Christmas trade deal between the UK and the EU, with the rise of COVID-19 cases and greater restrictions on the UK economy becoming a concern,” Rabobank strategists said.

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In late London trading, the pound was changing hands at $1.3593, up 0.3% versus a broadly weaker dollar. Against the euro, the pound was broadly flat at 90 pence.

The expected hit to the economy heaped expectations on the Bank of England to announce more policy easing.

Money markets now expect the central bank to cut benchmark interest rates as early as May, compared with an August estimate just after the Brexit deal was struck.

The pound had strengthened against both the dollar and euro after the Dec. 24 Brexit trade deal, which set rules for fishing, agriculture and other industries.

But despite the pound’s gains in recent days, market participants are not bullish on the currency’s prospects. Net long bets on the pound against the dollar are a fraction of what they were at their 2020 highs.

Moreover, though bullish pound bets have registered a fourth consecutive week of gains, the size of the gains in the latest week is far smaller than previous weeks.

Reporting by Saikat Chatterjee

Source: UK Reuters

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Sterling weakens against euro as post-Brexit deal rally falters

The pound weakened versus the euro on Britain’s first day of trading outside the European Union, but strengthened against a softer dollar, climbing above $1.37 for the first time since May 2018, as traders weighed up Brexit relief with COVID-19 risks.

The pound had strengthened after a last-minute Brexit deal was agreed on Dec. 24, which set rules for industries such as fishing and agriculture.

Although the deal does not cover Britain’s finance sector, UK market participants were relieved by an extension which allows them to use platforms in the European Union for swaps trading until March 2021 – a move announced on Thursday in a bid to avoid disruption.

At 0840 GMT on Monday, the pound changed hands at 89.77 pence per euro, down around 0.5% on the day.

Versus the weaker dollar, the pound was up 0.2% at $1.3682, having briefly crossed the $1.37 level for the first time since May 2018 early in the European session. The pound gained 2.5% overall against the dollar in December.

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Commerzbank’s head of FX and commodity research, Ulrich Leuchtmann, said that sterling’s recovery after the Brexit deal was agreed was “disappointingly limited”, but that it has further scope for gains in the next few days as traders adjust their positioning upon their return from holiday.

Leuchtmann was less bullish on sterling’s longer-term outlook, however.

“For market participants with a long-term outlook the concern that Brexit might constitute the beginning of renewed economic decline in the UK is more likely to dominate,” he said.

Sterling-dollar implied volatility gauges with one-month and three-month maturities, which spiked in December and then fell when the Brexit deal was agreed, have edged up again in the past few days, suggesting traders still expect price swings.

In bad news for sterling, COVID-19 cases in Britain are at record levels. Prime Minister Boris Johnson said on Sunday that tougher lockdown restrictions were probably on the way.

RBC Capital Markets analysts wrote in a note to clients that negative interest rates are likely to remain a possibility for the UK because, although a chaotic no-deal Brexit has been avoided, rising COVID-19 infections will have an impact on the Bank of England’s outlook for the economy.

Market participants are pricing in negative rates in the UK by May 2021.

Reporting by Elizabeth Howcroft

Source: UK Reuters

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Sterling dips below $1.30, tough Brexit negotiations eyed

Sterling sank on Tuesday, dipping against a broadly stronger dollar as investors kept an eye on ongoing Brexit negotiations for fresh drivers for a currency that has hovered below the $1.30 mark since September.

Recent reports have shown that the European Union wants more concessions from Britain before entering a last, intense phase of negotiations on future relations following the United Kingdom’s departure from the EU.

The two chief negotiators, the EU’s Michel Barnier and Britain’s David Frost, say they are inching towards a deal, though they have underscored that important gaps remain on fishing, level playing field issues and governance.

British Prime Minister Boris Johnson had set a deadline of the Oct. 15 EU summit for agreeing a trade deal and Frost is in Brussels for intensified talks.

With no fresh news coming out of the negotiations, sterling was trading in tight ranges. By 1521 GMT, the pound was 0.6% lower to the dollar at $1.2983.

The pound has been only minimally affected this week by labour market data, the Bank of England further weighing the possibility of negative interest rates, and renewed social restrictions in the UK to combat a fresh wave of COVID-19 infections, despite the implications of these factors for Britain’s economy.

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On Tuesday, Housing Secretary Robert Jenrick said the British government may have to impose tougher restrictions than it currently has if the second spike of the novel coronavirus accelerates in high risk areas.

Johnson introduced a new tiered system of restrictions for England on Monday, with Liverpool and the surrounding Merseyside area placed in the highest level, with pubs shut, to curb an acceleration in COVID-19 cases.

“The UK government announced stricter containment measures in some areas of the country and top health officials are already suggesting more will likely be needed,” ING strategists said in a note to clients.

“This is not good news for the battered UK economy but with Brexit negotiations at a critical phase, hardly anything else looks likely to impact the pound (the lack of reaction to labour data and comments about negative interest rates being a case in point).”

The Bank of England asked banks on Monday how ready they are for zero or negative interest rates. BoE policymaker Jonathan Haskel said the central bank had an “absolutely open mind” about the possibility of sub-zero rates as part of its support for Britain’s economy during the coronavirus crisis.

Britain’s unemployment rate rose by more than expected to 4.5% in the three months to August, its highest in more than three years, even before the end of the government’s broad coronavirus job protection plan.

Economists polled by Reuters had expected the jobless rate to rise more slowly, to 4.3% from 4.1% in the three months to July.

Sterling traded in tight ranges against the euro on Tuesday, last flat at 90.40 pence per euro.

“As we still see no major breakthrough in the Brexit negotiations this week, we think euro-sterling will continue to be trapped in the 0.90-0.92 range,” said Kristoffer Kjær Lomholt, Chief Analyst at Danske Bank.

Reporting by Ritvik Carvalho

Source: UK Reuters

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