Pound Heads for Weekly Advance Even as BOE Tightening Odds Ease

  • Sterling stronger in week against most Group-of-10 currencies
  • Ten-year gilt yields edge higher Friday, snapping two-day drop

BlackRock's Watson Doesn't See BOE Moving Anytime Soon

The pound was on track for weekly advances against most major peers ahead of the Bank of England’s policy decision, even though the prospect of near-term monetary tightening has been dimmed by lackluster economic data.

Sterling held its weekly gain versus the dollar, with the BOE due to announce its decision on interest rates and release the quarterly inflation report on Aug. 3. The market-implied probability of a rate increase by year-end has fallen to 34.5 percent, from 41.4 percent before a July 26 report that showed growth held near a one-year low in the second quarter.

  • The gross domestic product figures released Wednesday “would seem to be a victory for the doves” on the central bank’s Monetary Policy Committee, Barclays FX strategist Moyeen Islam writes in a client note
    • “Our economists expect both the GDP and inflation profiles in the August report to both be revised lower”
    • “Perhaps, more important for the market will be the need for the MPC to re-establish a perception that there remains a monetary policy strategy in place. The twin surprises of a split vote and Haldane’s intervention has left the market unclear as to what the MPC actually seeks to do”
  • Sterling received added support as Chancellor of the Exchequer Philip Hammond outlined the most detailed vision yet of his plan for post-Brexit Britain, offering businesses the prospect of an extended transition period that would allow trade with Europe to continue undisrupted
    • “The euro has popped a bit as well so the pound is perhaps tracking that” too, said Derek Halpenny, London-based head of European markets research at MUFG. “At the margin, the Hammond comments would be supportive so it could potentially be having an impact too”
  • GBP/USD rises 0.1% Friday to 1.3080 in London, taking the week’s advance to 0.6%
    • Pair touched a 10-month high of 1.3159 on Thursday
    • EUR/GBP +0.3% Friday at 0.8964; -0.1% in week
  • Benchmark 10-year gilts snapped a two-day gain; yield +3bps to 1.23%
  • GfK Consumer Confidence indicator fell to -12 in July from -10 in June, according to a report today
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