LONDON: Sterling steadied against the euro on Monday after a sharp slide last week triggered by the European Central Bank’s more hawkish tone, which overshadowed the Bank of England’s rate rise.
The euro rose versus sterling last week after the ECB surprised markets by suggesting for the first time that an interest rate rise this year was a possibility.
By 1600 GMT on Monday, sterling flattened against the euro to 84.59 pence, after touching its lowest level against the single currency since December.
It lost some steam against the dollar, flattening at $1.3528, after hitting its lowest level in almost one week versus the greenback.
While a quarter-point hike by the BoE was largely expected, a split vote came as a surprise, as four of the nine Monetary Policy Committee members wanted a 50 basis points move. The BoE also warned inflation could top 7%.
“Last week both the BoE and the ECB were more hawkish than expected though the ECB was the far greater surprise,” said Jane Foley, head of FX strategy at Rabobank in London.
As the ECB provides some more details on its future direction, the pound could recover a little versus the euro, but the dollar’s safe-haven status may keep a lid on GBP/USD this week, Foley added.
ECB President Christine Lagarde told the European Union Parliament on Monday that current price pressures will likely subside before becoming entrenched, enabling the central bank to deliver on its 2% inflation target over the medium term.
Speculators’ net long positions on the pound against the dollar fell to a three-week low in the week to Feb. 1, futures data from CFTC showed.
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