Sterling steadies below $1.30 as focus turns to BoE

LONDON: Sterling steadied near recent seven-month highs close to $1.30 on Tuesday, as traders looked to a Bank of England inflation report and policy meeting this week for fresh drivers for a currency that has climbed almost 5 percent in the past month.

The BoE's "Super Thursday" will be closely watched for clues on how long UK interest rates will remain at record lows. Inflation has risen above the Bank's 2 percent target, outpacing wage growth and hitting the consumers who have shored up the economy since last year's Brexit vote.

A recent Reuters survey forecast no change until 2019 at the earliest as the central bank waits to see how divorce negotiations with the European Union pan out.

Investors will also be on the look-out for whether the Bank cuts its economic growth forecasts, having raised them in its last report in February.

Until then, sterling will probably stay in the $1.2850-$1.2990 range it has traded in since the start of last week, analysts said. It was flat at $1.2940 on Tuesday, close to a seven-month high of $1.2990 hit at the start of the week.

Data released on Friday showed speculators trimmed their short positions on the pound for a third week in a row, to a two-month low of 81,364 contracts.

"$1.30 has become a big psychological level now," said Rabobank currency strategist Jane Foley.  "The big driver for sterling over the past month or so has been short-covering, but whether people want to buy it and push it above $1.30 is another (matter)."

The pound is trading around 8 U.S. cents higher than its March lows, with investors buying back into the battered currency last month when Prime Minister Theresa May unexpectedly called an early election for June 8.

That reflects a view among investors that May's Conservative party will get a larger majority that will give her a stronger hand to compromise in Brexit talks. That view had now been baked into the price, Foley said, and therefore sterling needed fresh impetus for further gains.

Sterling is still down almost 14 percent against the dollar since last June's EU referendum. But it is also almost 13 percent higher than the 31-year lows it hit in October.

Against the euro, the pound is down less than 10 percent since June, and was up 0.2 percent on Tuesday at 84.295 pence .

"The currency remains cheap and speculative positioning remains heavily bearish," wrote BMI strategists in a research note. "We expect (sterling) to continue outperforming its peers over the coming months."