Sterling Is Pushed and Pulled as Traders Await BOE Rate Signals

  • BOE to keep key rate on hold at 0.5%, economists predict
  • Pound weakens against euro as it rises versus dollar

The pound dropped against the euro and rose versus the dollar as traders awaited the Bank of England’s decision on interest rates as well as minutes of its meeting which will be scoured for clues as to when officials will tighten policy.

With markets suggesting the BOE won’t boost its 0.5 percent main rate until late-2016, all 41 economists in a Bloomberg survey predict policy makers will hold fire Thursday. The minutes, due to be released alongside the rate decision at noon London time, will show how the nine-member Monetary Policy Committee voted and will be scrutinized for any change in language describing the economic environment.

“We’re not expecting too much” from the BOE, and after the decision “there’ll be a bit of volatility, but I’ll be incredibly surprised if the BOE were willing to firm up its guidance at the moment and get off the fence,” said Neil Mellor, a senior foreign-exchange strategist at Bank of New York Mellon Corp. in London. “I would be reluctant to read too much into sterling’s moves.”

The pound slipped 0.3 percent to 73.55 pence per euro as of 11:25 a.m. in London. It rose 0.3 percent to $1.5358, after touching a two-week high of $1.5361.

BNP Paribas SA recommends betting on sterling appreciating against the euro before the BOE decision. 

‘Highly Unlikely’

“The BOE’s message is highly unlikely to validate market pricing for no hike until late in 2016,” BNP analysts, including global head of foreign-exchange strategy Steven Saywell, wrote in a note to clients. “Which is why we continue to see sterling risks as heavily biased to the upside.” BNP sees the pound climbing to 70 pence.

The U.K. currency has declined against all but one of its 16 major peers in the past month as the Federal Reserve’s decision to delay raising rates and signs global growth is slowing prompted investors to push back their view of the BOE’s own rate path.

Slowing Economy

A report this week showed Britain’s services grew at the slowest pace in more than two years in September, supporting the case for keeping rates at a record-low. BOE Governor Mark Carney has said the timing of an increase will become clearer at the turn of the year.

U.K. government bonds rose after the International Monetary Fund warned that emerging markets face “substantial challenges” and that central-bank policy missteps risk derailing the global economy and triggering stock selloffs.

Benchmark 10-year gilt yields fell three basis points, or 0.03 percentage point, to 1.80 percent. The 2 percent bond due in September 2025 climbed 0.28, or 2.80 pounds per 1,000-pound face amount, to 101.85.

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