LONDON: Sterling recouped some losses against the dollar on Thursday but was still languishing near a 2-1/2 year low ahead of upcoming speeches by Bank of England and Federal Reserve officials that could determine the near term outlook for the currency.
The Kansas City Federal Reserve’s Jackson Hole Symposium kicks off on Thursday, with BoE Governor Andrew Bailey scheduled to join Fed Chair Jerome Powell and other central bankers at the three-day event.
The pound hit its lowest level since March 2020 on Tuesday after purchasing managers’ index (PMI) data showed activity in the private sector slowed to a crawl in August.
By 0924 GMT, sterling was up 0.5% at $1.1844 as the rally in the greenback has taken a breather following a run which saw the dollar index surge towards a two-decade high earlier in the week.
“It’s tough to see today’s move in the pound as any more than a bit of technical reset or some relief as part of a longer-term, weakening trend,” said Ben Laidler, global markets strategist at eToro.
“I think this move is just the dollar backing off a bit,” Laidler added.
Focus was now on Jackson Hole where Bailey is likely to reiterate the BoE’s commitment to hiking interest rates in an attempt to bring inflation down to target, even as the central bank forecast the economy is likely to enter a recession at the end of this year and not emerge until 2024.
Money markets are fully pricing in a 50-basis-point rate hike at the BoE’s meeting next month, with a slight chance of a larger 75 basis point rate rise, according to Refinitiv data.
Meanwhile, against the euro, the pound was little changed at 84.45 pence.
Both the euro and the pound have fallen around 12% against the dollar this year, with the euro zone facing similar problems to the British economy in regards to sky-high gas prices and slowing growth.
“European currencies remain out of favour with the energy cost issues,” said INFINOX financial market analyst Richard Perry.
Front-month Dutch gas, the benchmark for Europe, rose a further 5% on Thursday, heaping more pressure on Europe as it looks to refuel ahead of winter.
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