LONDON: Sterling rose for a second day on Tuesday, pulling away from last week's four-month low against the dollar, buoyed by improved risk sentiment in global markets and news that a Japanese insurer was buying a British company.
Mitsui Sumitomo Insurance said it had agreed to buy British insurer Amlin Plc in a cash deal that values the latter at about 3.46 billion pounds ($5.31 billion)
Traders said that news drove sterling up 1.25 percent against the yen to 184.30 yen, with investors cutting back on unfavourable bets in the pound. Sterling had hit a four-month low against the yen last week as a wave of risk aversion swept global markets and drove investors to seek the safe-haven Japanese currency.
"The M&A news has led to short sterling positions being squeezed," said a London based trader.
"Some are targeting sterling to rise to $1.55 in the near term." Sterling hit a one-week high of $1.5390, recovering from the four-month low of $1.5163 struck on Friday. Sterling was also higher against the low-yielding euro, trading 0.4 percent firmer at 72.84 pence per euro.
Last week, a slew of disappointing data added to doubts over whether the Bank of England would be able to raise interest rates any time soon especially given the worries over market volatility and global growth.
Though BoE Governor Mark Carney has said that a slowdown in China's economy did not for now change the bank's position on when and how it might raise rates, he did acknowledge that it could push British inflation still lower.
A month ago, sterling money markets were pricing in a hike around the beginning of next year. The earliest they now expect the BoE to move is April or May.
Investors are eyeing Thursday, when the BoE's nine-member Monetary Policy Committee will meet and release minutes from the meeting. Last month just one MPC member voted in favour of an immediate rate hike.
"Investors could be looking towards any positive clues from the central bank on when they may begin raising UK rates," said Jameel Ahmad, chief market analyst at FXTM.
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