British Pound Sterling traded above $1.31 on Monday, July 31, close to a 10-month high, as investors eyed this week’s Bank of England “Super Thursday” for a steer on whether record-low interest rates could soon be lifted for the first time in more than a decade.
Sterling has been supported in recent weeks by expectations the Bank might finally be getting ready for a hike after a series of hawkish comments from policymakers, but Governor Mark Carney and most of his top officials seem set to remain in wait-and-see mode.
Data showing Britain’s housing market and consumer economy lost a small amount of momentum last month, as mortgage approvals dropped to a nine-month low and unsecured lending growth slowed further, had little impact on the currency.
But the numbers added to a run of weak data which, along with deep uncertainty about the impact of Brexit on the economy, have cooled the speculation that the BoE is poised to start removing its crisis-level stimulus.
While sterling was trading less than half a cent away from 10-month highs on Monday at $1.3131 GBP=D3, it was also close to its lowest levels in nine months against the euro, down 0.1 percent on the day at 89.50 pence EURGBP=D3.
The BoE will also publish a quarterly Inflation Report on Thursday, with economists expecting the Bank to push up its inflation forecasts slightly but to lower its projection for growth after the weak start to the year.
Some investors see hawkish comments from policymakers at the Bank as attempts to talk up a currency that has lost almost 15 percent against both the euro and dollar since last June’s vote for Brexit.
“With other major central banks normalising their own policy stances, we expect the MPC (monetary policy committee) to avoid sending an overtly dovish signal this week in order to avoid extended sterling weakness,” wrote BMO currency strategists in a weekly note to clients on Monday.
But others say with more government unity around Brexit, and with signs that the “hard Brexit” markets fear could be averted, it made sense for the BoE to be moving towards tightening. Three out of eight MPC members voted in favour of a hike at the last meeting.
Chancellor Philip Hammond, who campaigned for Britain to remain in the EU and is seen as a proponent of a relatively “soft Brexit”, last week lent some support to sterling by saying he backed the transitional Brexit deal that Prime Minister Theresa May wants, Reuters reports.
Hammond told a French newspaper over the weekend that Britain does not intend to lower taxes far below the European average in order to remain competitive after Brexit, but rather will keep a socio-economic model that is “recognisably European”.
