LONDON: Sterling held firm near a 13-day high against the dollar on Wednesday as a fall in UK COVID-19 infections raised investor hopes that the Bank of England could be less dovish than expected when it meets next week. Elsewhere currency markets were generally cautious ahead of the US Federal Reserve meeting later in the session. Markets are waiting to see if the Fed will provide any clues on the timing of any slowdown in its bond-buying programme, amid surging US inflation.
Sterling held on to recent gains. The sterling-dollar pair saw a sudden surge on Tuesday around the time at which daily foreign exchange benchmarks are calculated.
At 1100 GMT, the pound was flat on the day versus the dollar, at $1.38825, close to a 13-day high. Versus the euro, it was up around 0.1% at 0.8503, having briefly crossed the key 0.85 level for the first time since April earlier in the session.
Analysts attributed the pound's gains to COVID-19 cases in Britain declining over the last seven days, although British Prime Minister Boris Johnson advised against drawing conclusions from the data, saying it was too early to assess whether there was a definite trend.
"It's been a good week for sterling, reflecting the fact that virus cases have gone down rather than up," said Colin Asher, senior economist at Mizuho in London. "If we roll into next week's BOE meeting with (daily) cases below 10,000 then the BOE may be less cautious than was expected. "We will probably see upgrades to BOE forecasts on inflation and growth. I think UK data is strong enough to expect that QE could be terminated early," Asher added, referring to the quantitative easing or bond-buying scheme.
SHIFT IN RHETORIC
The Bank of England looks set to keep its stimulus running at full speed next week despite two policymakers breaking ranks to suggest that its nearly 900 billion pound ($1.2 trillion) QE programme might have to end early as inflation speeds up.
Stuart Cole, head macro economist at Equiti Capital, said fall COVID-19 cases and more optimism for growth in the second half of the year were raising expectations for a shift in the monetary policy committee's rhetoric.
Bank of England interest-rate setter Michael Saunders could possibly vote to curtail the bond-buying programme, Cole said.
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