Pound resists resurgent dollar

Published Aug 5, 2015

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London - Sterling was alone among major currencies in resisting a resurgent dollar on Wednesday, pointing to growing expectations that the Bank of England will follow swiftly on the heels of any rise in US interest rates.

Atlanta Federal Reserve chief Dennis Lockhart bolstered bets on Tuesday that the US central bank might move on rates as early as September, sending sterling around 1 cent lower against the dollar.

But with momentum also building for a rate hike in Britain, the pound recovered around half of that loss on Wednesday and was just over 0.1 percent higher on the day at $1.5581.

It gained a third of a percent to hit a two-week high of 69.65 pence per euro.

“Put simply both economies have a lot of similarities,” said Hans Redeker, head of Global FX strategy at Morgan Stanley in London. “You can see that both US and UK money market rates are moving this morning in their favour when there is almost no movement elsewhere.”

The short sterling contract for December fell by 3 basis points, pricing in more than half of a quarter percentage point move by the BoE by the end of this year.

Odds remain on it waiting till 2016, however, and the chances of UK rates rising before US ones still look slim.

That is all happening ahead of a “Super Thursday” of publications by the Bank of England, expected to show at least some of its policy committee members voted for a rise in rates already this month.

Inflation remains weak and the bank's short-term forecasts are expected to underline that, although a recovery of wage growth may support higher predictions further out.

“Into the inflation report, we remain bullish GBP but think investors will get better levels to add,” said Josh O'Byrne, a strategist with Citi in London.

“Rates look the more attractive venue, where despite hawkish policy signals, markets still price a May 2016 hike and just 30 percent probability it occurs this year.”

REUTERS

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