- BOE Governor Mark Carney scheduled to speak on Tuesday
- Reports on inflation, wage growth, retail sales due this week
The pound rallied from its lowest level in 5 1/2 years as traders awaited signals from the Bank of England about the path of interest rates amid speculation the recent selloff has gone too far.
Sterling also rebounded from Friday’s one-year low against the euro and climbed versus most of its 16 major peers. How far this advance has to run may be determined by a slew of economic reports due this week, including data on inflation, wage growth and retail sales. BOE Governor Mark Carney will give his thoughts on the outlook for the U.K. for the first time this year on Tuesday, while fellow Monetary Policy Committee member Gertjan Vlieghe is speaking late Monday.
Britain’s currency has declined 3 percent versus the dollar in 2016 as global market turmoil sparked by China and concerns Britain may vote to leave the European Union drive investors away.
“We’re seeing the opposite of what happened last week with a little bit of relief around the world,” said John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in Hellerup, Denmark. “Later this week, if we see the markets are on a more solid footing and the bad nerves go away, and we get some solid U.K. data, then we could see the focus swinging back to the Bank of England. The sterling bounce could get more profound.”
The pound rose 0.1 percent to $1.4270 as of 4:55 p.m. London time, after sliding to $1.4248, the lowest level since May 2010. It strengthened 0.4 percent to 76.28 pence per euro, its biggest gain in a week and up from 76.95 on Friday, the weakest level since Jan. 21, 2015.
Reports this week are forecast by economists to show inflation remained close to zero and retail sales dropped in December, while wage growth slowed in the three months through November.
If the data show this but the BOE doesn’t change its outlook for economic growth, that could still be positive for the pound, said Valentin Marinov, head of Group-of-10 foreign-exchange research at Credit Agricole SA’s corporate and investment-banking unit in London.
Forward contracts based on the sterling overnight index average, or Sonia, aren’t fully pricing in a quarter-point increase to the U.K.’s 0.5 percent main interest rate until after March 2017. That’s a month later than what was shown last week.
In contrast, markets are signaling a more-than-50 percent chance of an additional increase in U.S. rates by the Federal Reserve’s September meeting.
“The pound was among the worst-performing currencies at the start of 2016 on the back of Brexit fears and global market risk-off,” Marinov said. “Given that markets have pushed back the timing of the BOE’s first rate hike so much, no news from the BOE will be good news for the pound.”
Not everyone’s so positive. JPMorgan Chase & Co. lowered its sterling forecast to predict a drop to $1.32 by June, from a previous estimate of $1.45, according to a Jan. 15 report.
U.K. government bonds fell for the first time in five days. The 10-year gilt yield rose three basis points, or 0.03 percentage point, to 1.69 percent. The 2 percent security due September 2025 dropped 0.27, or 2.70 pounds per 1,000-pound face amount, to 102.725.
The nation’s Debt Management Office is scheduled to auction 4 billion pounds of bonds maturing in 2021 on Wednesday.