Pound Gains as BOE Says Rates May Rise More Than Markets Expect

  • Broadbent reiterates view that any increase will be gentle
  • Non-farm payrolls data unlikely to affect pound dynamic: MUFG

Berenberg's Schmieding Sees Sideways Pound in Limbo

The pound rose and bonds fell after Bank of England Deputy Governor Ben Broadbent said interest rates could rise more than the markets expect.

Two-year gilts pared this week’s rally on his remarks, though he told BBC Radio that any increase would be gentle. Broadbent’s comments came after the pound fell from an 11-month high on Thursday as the market interpreted the central bank’s decision to leave interest rates unchanged as dovish.

“I think it’s some bounce-back after yesterday’s heavy sell-off,” said Lee Hardman, a foreign-exchange strategist at MUFG in London. “The BOE was still kind of stressing the market was underpricing rate hikes going forward, but the market doesn’t believe them right now.”

  • GBP/USD climbs 0.1% to 1.3153 as of 10:53 a.m. in London, headed for a second weekly gain
    • Support at 1.3097; resistance at 1.3073
  • Broadbent also said the shadow of Brexit is holding back U.K. investment, even though the economy has all the right conditions in place for a pickup
  • U.S. non-farm payrolls data for July due to be released at 1:30 p.m. in London; expected to show slowing jobs growth from June
    • Sterling’s recent rally has been on the back of broad dollar weakness, and the U.S. data isn’t likely to change the current market dynamic as the dollar is likely to continue to weaken, according to Hardman
  • Yield on two-year gilt rises 2 bps to 0.24%, paring this week’s decline to 2 bps

— With assistance by Sejul Gokal

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