Sterling traded slightly below
$1.27 on Thursday as investors were divided over the prospect of
a rise in interest rates from the Bank of England after two of
its top officials gave opposing signals on the matter this week.
BoE Governor Mark Carney said in a speech on Tuesday it was
not the right time to raise interest rates, while the Bank’s
chief economist, Andy Haldane, separately said he expected to
vote for a rate rise later this year.
That split came barely a week after three members of the
central bank’s eight-strong rate-setting committee voted to hike
record low interest rates, fuelling differing views among
investors over when the Bank would make the first UK interest
rate hike in a decade.
Sterling weakened almost 1 percent after Carney’s comments,
but was bumped higher after Haldane spoke on Wednesday,
recovering to as much as $1.2704.
It hovered between $1.2654 and $1.2688 for most of the day,
last trading flat at $1.2666 by 1440 GMT. <GBP=D3>
Against the euro, it was 0.1 percent higher at 88.10 pence.
Jeremy Stretch, currency strategist with CIBC World Markets
said sterling’s bump higher on Haldane’s speech looked overdone.
“The market has become a little over-excited about the
prospect of monetary tightening in the UK…Haldane’s growth
assumptions I think are too elevated and accordingly if those
are revised lower he will not be too hawkish and sterling
support will prove to diminish.”
Strategists at Nomura took a different view, saying they
expected the BoE to undo its Brexit-induced rate cut at its next
meeting on Aug. 3.
“With the Bank growing increasingly intolerant of
above-target inflation, it has begun to feel that weaker data
would now be needed to prove the case for keeping policy on
hold, rather than stronger data being required to justify higher
rates,” they wrote in a note.
Potentially adding to arguments for a rate hike from the BoE
was a monthly survey which showed British factory orders hit
their highest level in nearly 30 years in June. The same survey
showed export order growth at its strongest in 22 years, helped
by the fall in sterling’s value that was triggered by Britain’s
vote last year to leave the European Union. [nL8N1JJ27C]
Outgoing MPC member Kristin Forbes, long an anti-inflation
hawk on the BoE committee, is due to speak at London Business
School later in the day.
Investors were also following political developments, with
Prime Minister Theresa May presenting to EU leaders her approach
to giving guarantees to EU citizens over their rights in
After a snap election eroded her Conservative Party’s
majority in parliament, May is still in talks with Northern
Ireland’sDemocratic Unionist Party to form a minority
Finance minister Philip Hammond said he was confident May
would strike a deal with the DUP to gain support for her
minority government, and DUP lawmaker Jeffrey Donaldson said
there was a “very good” chance of a deal by next Thursday.
“Sterling has had its Haldane-inspired lift, and probably
has little further upside with the main focus on politics,” Kit
Juckes, currency strategist with Societe Generale wrote in a