The British Pound Sterling stayed at a one-week low on Thursday, February 22, as markets grew more convinced that the Bank of England will raise interest rates again in May on the back of an improving economy, though already large bullish positions may temper any big move higher.
Sterling slipped 0.2 percent at $1.3869 on Thursday, settling at its lowest since Feb. 14, but not far away from a post-Brexit referenidum vote high of above $1.43 hit in late January.
Britain recorded stronger-than-expected economic growth in the fourth quarter of 2017 and Thursday’s second reading of the GDP figures, due at 0930 GMT, will give a better sense of what was driving the expansion.
Despite the British currency’s weakness this week, sterling is still up nearly 3 percent against the dollar this year as investors have ramped up bets that the Bank of England may raise interest rates more than previously forecast.
Morgan Stanley strategists said long positions in sterling were the largest in its G10 currency position monitoriiiii,Reuters reports.
In an annual report to parliament on Wednesday, Bank of England’s chief economist Andy Haldane said the risks to the BoE’s latest projections, for both UK demand and inflation, were to the upside. He said both the global economy and Britain could well do better than the BoE’s most recent forecasts.
“Markets are coming around to the view that there is going to be another rate hike in May and today’s GDP readings are unlikely to change the view,” said Lee Hardman, currency analyst at MUFG in London.
The BoE said earlier this month it expected to raise rates sooner and by more than it had expected as recently as November.
Most economists now expect the BoE to raise rates to 0.75 percent in May, and financial markets see a roughly 70 percent chance of a further rise this year, taking rates to 1 percent.
Against the euro, the pound was broadly steady around 88.44 pence and was stuck in well-worn trading ranges.
Analysts said a letter from 62 lawmakers from the ruling Conservative Party to Prime Minister Theresa May this week demanding a quick, clean break from the European Union may also be a factor weighing on sterling.