The British Pound Sterling on Monday, February 19 edged down against the dollar and euro, with traders cautious ahead of key wages data due later in the week that should give them clues to the pace of monetary tightening from the Bank of England.
Pound drops 0.2 percent on Monday at $1.4007, just over 2 percent down from an 18-month high hit in late January. It was also down 0.1 percent at 88.57 pence per euro.
Markets have moved to price in an interest rate hike in May, but economists say any such tightening is dependent on pay growth picking up, and on whether Prime Minister Theresa May can soon secure a transition deal for the two years after Brexit.
The shift in market expectations followed a surprisingly hawkish BoE meeting when it said interest rates would need to rise sooner and by somewhat more than it had previously expected, in order to get inflation back on target within two years rather than three.
But analysts say a flat labour market report on Wednesday could dampen those expectations.
“If we were just to choose one economic data release for sterling, it’s got to be the earnings numbers now,” said Rabobank currency strategist Jane Foley.
“The Bank of England has hung its hat on the assumption that there will be wage inflation … and that Brexit will be smooth. The signal they gave us that they are positioning for a May interest rate hike relies on this assumption,” she added.
Foley added that investors had become more nervous about Brexit negotiations, having started the year confident that Britain would secure a transitional deal but having become less so. Sterling slumped earlier this month when the EU’s chief negotiator Michel Barnier said such a deal was “not a given”.
Positioning data released on Friday showed speculators trimmed their bets on further sterling strength against the dollar for a third straight week, though they were still net-long the currency, Reuters reports.
