LONDON: Sterling fell against a strengthening euro while it was flat versus the dollar.
Hawkish comments amplified bets that the European Central Bank would soon hike interest rates, lifting the euro to a one-week high amid expectations French President Emmanuel Macron would win his reelection bid on Sunday.
Investors were still focused on the future monetary policy path of the Bank of England, while waiting for more central bank speakers later in the day from Washington.
The pound was down 0.2% at 83.21 pence per euro, after hitting its lowest level since April 11 at 83.66 earlier in the session.
“MPC members have sounded dovish on interest rates in recent weeks,” Ebury analysts said. However, “the blowout inflation report for March, and a near certainty that the April print will be even higher, suggests that the bank won’t be able to hold the line for much longer.” The BoE last month softened its language on the need for more interest rate increases while stressing downside risks to the economy.
BoE monetary policymaker Catherine Mann said on Thursday interest rates would probably have to go up “a little bit” further, and that in some ways Britain’s economy was already suffering from stagflation.
Last week’s data showed that British inflation leapt to its highest level in three decades. On Tuesday, the International Monetary Fund forecast that Britain would face slower economic growth and more persistent inflation than any other major economy next year.
Money markets are pricing in 160 bps of BoE rate hikes by the end of 2022.
“In FX markets, the attitude of investors to trade the different intensity of tightening that major central banks will likely deliver over the course of the year remains the main theme,” Unicredit analysts said in a research note.
The pound was barely flat against the dollar at $1.3063, after less-hawkish remarks by Federal Reserve officials triggered some profit-taking on the greenback.
“GBP-USD is consolidating above 1.30, but interest to bring it much higher to around 1.31-1.32 remains light,” Unicredit analysts added.