Pound Rises Before BOE’s First Rate Decision Since Brexit Vote

  • Sterling approaches highest level in more than a week
  • Chances of BOE rate cut seen at 86%, from 11% on June 23

Patient Bank of England Relieves Pressure on Pound

The pound advanced as traders awaited the Bank of England’s first interest-rate decision since the U.K. voted to leave the European Union.

Sterling strengthened against 13 of its 16 major peers, approaching its highest level in more than a week versus the dollar. The U.K. currency’s rally came even amid rising speculation that the central bank will cut its benchmark rate for the first time since 2009 to support the U.K. economy from the fallout of Brexit. Futures pricing shows the chance of a rate cut at this meeting has climbed to 86 percent, compared with 11 percent on June 23, the day of the nation’s referendum.

“Currency investors see a rate cut today as a done deal,” said Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA’s corporate and investment-banking unit in London.

“I think the BOE will struggle to exceed the already dovish market expectations and this will help the pound to consolidate in the aftermath of the meeting,” he said. “This is why people are buying at present, they are trying to anticipate a squeeze higher after the event.”

The pound rose 0.7 percent to $1.3235 as of 11:45 a.m. London time, having touched $1.3338 on Wednesday, the highest since July 4. Sterling strengthened 0.6 percent to 83.88 pence per euro.

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Post-Brexit BOE

Thirty-one of 54 economists surveyed by Bloomberg predict the BOE will lower its benchmark interest rate on Thursday, with a majority of those seeing a 25 basis-point reduction to 0.25 percent.

The BOE’s decision will be the first since the U.K. historic vote to leave the EU. Central bank Governor Mark Carney said shortly after the referendum that monetary easing would probably be needed over the summer, which left investors to speculate on the timing of the move. The BOE’s next meeting is on Aug. 3-4.

The central bank has already increased its liquidity operations and relaxed bank rules to encourage lending in an attempt to contain the fallout from the referendum result.

Rally Resumes

The pound climbed for three days through Tuesday against the dollar as it became clear that Theresa May would replace David Cameron as U.K.’s prime minister, ending a period of political instability that has lasted since Britain voted to leave the world’s biggest trading bloc. The former Home Secretary took office Wednesday evening.

Still, sterling is 11 percent lower versus the U.S. currency since the U.K. opted for Brexit. The pound tumbled to the lowest level against the greenback since 1985 last week, after having its worst day on record on June 24, when the result of the referendum became clear.

U.K. government bonds declined, with the benchmark 10-year gilt yield rising three basis points, or 0.03 percentage point, to 0.77 percent. The yield dropped to an all-time low of 0.708 percent on July 11.

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