LONDON: Sterling edged up on Thursday and traded near its highest level against the euro since April ahead of a Bank of England policy meeting, with the central bank expected to hike interest rates by the most since 1995.
The central bank is largely expected to raise rates by 50 basis points (bps) to 1.75%, the highest since late 2008, and its sixth increase since December as it attempts to cool inflation from a four-decade high.
Money markets are currently pricing in a greater than 90% chance of a 50 bps hike when the Bank of England (BoE) announces its decision at 1100 GMT, according to Refinitiv data. A Reuters poll published on Monday showed over 70% of the 65 respondents to the July 27-Aug. 1 survey expected a half-point increase from the BoE’s Monetary Policy Committee.
“We have to look at other hikes from central banks, they have all gone for bigger,” said Jane Foley, chief currency strategist at Rabobank, adding “even a 50 bps point move may not be enough to keep sterling supported”.
In terms of the impact on sterling, much will depend on the central bank’s guidance, she added. “You have to ask, can the BoE be any more hawkish than other central banks, and the answer is probably not”.
A 25 bps hike would suggest a gloomy economic outlook and hit the pound hard, traders said. Sterling edged up in early London trading before flattening against the single currency at 83.68 pence at 0827 GMT, remaining near highs last seen in April.
Sterling edges higher ahead of Thursday’s BoE decision
Against the dollar, the pound rose 0.1% to $1.2159, not too far from a month high touched on Monday.
Sterling has weakened more than 10% against the dollar this year as rampant inflation, a weakening economy and war in Europe have encouraged investors to sell the risk-sensitive currency.
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