ADVERTISEMENT

News

Sterling sets for third straight weekly gains, but weakens

ADVERTISEMENT

by Stefano Rebaudo

(Reuters) – The British pound was slightly lower on Friday, but was still poised for a third straight weekly gain against the weaker US dollar.

Analysts expect the pound to remain weak as central banks, including the Bank of England (BoE), tighten monetary policy even in a recession that is expected to be deeper in the UK than in the US.

Expectations of interest rate hikes, which normally boost the value of the currency, could hurt the pound by downplaying the country’s economic prospects.

“Given the main economic and inflationary risks, the GBP yields may not be high enough to offset the specific risk premium,” said Ulrich Leuchmann, head of currency research at Commerzbank.

Britain’s Office for National Statistics revised its producer price inflation figures on Friday, meaning that factory gate inflation is higher this year than ever before.

The dollar was heading for weekly losses as the prospect of a further slowdown in monetary policy by the Federal Reserve unnerved investors.

At 0958 GMT, the pound was down 0.3% against the dollar to $1.2076. On Thursday, it reached $1.2153, its highest level since August 12.

The British pound fell 0.1% against the euro to 86.01 pence. It was set for its third consecutive weekly gain against the dollar and euro.

“Given the bleak picture for the UK economy, we find it difficult to see the current GBP-USD rally being sustainable over the long term,” Unicredit analysts said in a note.

“The tight budget recently announced by the UK government will make it more difficult for the BoE to implement tighter monetary policy to tackle inflation,” he added.

Also read  ROH Death Before Dishonor Zero Hour Begins

UK Chancellor of the Exchequer Jeremy Hunt announced a tax increase and government spending tightening last week.

BoE Deputy Governor Dave Ramsden on Thursday supported further rate hikes, but said he would consider cutting rates if the economy and inflationary pressures are different than he expected.

BoE policymaker Catherine Mann said Thursday she expected inflation to be at the higher end of projections released by the central bank earlier this month.

Wednesday’s news that the Scottish government cannot hold a second independence referendum next year without the approval of the British Parliament had little effect on the pound.

(Reporting by Stefano Rebaudo; editing by Mike Harrison)

Source

ADVERTISEMENT

ADVERTISEMENT

Leave a Comment