The British Pound Sterling, on Friday, June 23 moved up by almost half a percent against the dollar, buoyed by a shift in expectations for interest rates.
Sterling advanced by a solid 0.4 percent gain against the dollar on Friday, to trade at $1.2732. It was flat at 87.95 pence per euro.
Analysts from Japanese bank Nomura were the first major house on Thursday to flip to calling for a rise in rates this year, after the defection over the past week of three members of the BoE’s policy committee to the camp backing higher rates.
Policy hawk, Kristin Forbes, in her last speech before leaving the bank, urged colleagues on Thursday evening to raise rates immediately to quell the inflation pressure stemming from a weaker pound.
“We think rates will be on hold for the next year – but the market has definitely started pricing in the chance of a hike in the next six months,” said Rabobank strategist Piotr Matys. “That is clearly giving sterling some support.”
Short-term UK market interest rates have shifted since a speech by the Bank’s chief economist, Andy Haldane, earlier this week, with short sterling pricing in a strong chance of a rise in rates by December.
Barclays economists said that while they stuck with their call for rates to stay on hold, there was a risk the Bank would hike in November, and start to prepare markets for that move in August.
“The BoE has signalled it has limits about the scale of the overshoot it is willing to tolerate – especially given the persistence of currency-induced shocks on inflation,” JPM economist Allan Monks said in a note on Friday.
The pound continues to suffer because of political uncertainties generated by Brexit talks and a snap election this month which left Prime Minister Theresa May short of a majority in parliament, Reuters reports.
