The British Pound Sterling dropped on Wednesday, January 10, below the $1.35 line for the first time in a week on as investors locked in profits after a rally, though some decent economic data stopped it dropping further.
Sterling edged 0.4 percent lower at $1.3493, trimming some of its 4.5 percent rise over the last two months.
British industrial output rose by a monthly 0.4 percent in November, compared with 0.2 percent in October, spurring an annual rise of 2.5 percent. Economists taking part in a Reuters poll had expected to see output rise 0.3 percent on the month and 1.8 percent for the year, Reuters reports.
“The data is mildly supportive for sterling but the big one would be UK inflation data next week and any news on Brexit negotiations,” said Viraj Patel, an FX strategist at ING in London.
Against the euro, it has been a more mixed picture, with sterling oscillating around the 88 cents line over the past month as the pound regained some momentum against the single currency.
A spike in inflation data, due next week, would push the pound up further as markets start repricing expectations of the timing of the next rate hike from the Bank of England after it first raised interest rates last November.
Currency markets expect UK interest rates to rise only by the second half of 2018. A Reuters poll in December expects the next hike only in the fourth quarter of 2018.
Despite the cautious views on the timing of the next rate hike, investors have warmed to the bullish sterling theme in recent weeks on expectations of some progress in Brexit negotiations.
Net long bets on sterling are near their highest levels in more than three years, according to data released by the U.S. Commodity Futures Trading Commission on Friday.
The dollar’s weakness has also played its part in propping up the pound but Neil Mellor, a currency strategist at BNY Mellon, said underlying fundamentals are “increasingly devoid” of support for the British currency.
