LONDON: The pound was set to finish the week down on the dollar and a fraction stronger against the euro as traders digested data that caused analysts to pare back expectations of near-term Bank of England easing and worry about longer-term economic prospects.
Sterling was last up 0.27% on the day against the dollar at $1.3454, though set for a weekly fall of 0.3%, both in line with the dollar’s moves against other European currencies.
It was trading at 86.57 pence to the euro, softer on the day, but a whisker stronger on the week.
Friday was quiet in terms of domestic British data after a busy week, which saw hotter than expected inflation numbers released on Wednesday and news of slowing wage growth on Thursday.
The data caused analysts at Goldman Sachs, Citi and Bank of America, who had previously expected the Bank of England to cut interest rates in both August and September, to remove the September cut from their forecasts in notes published on Friday.
“The labour market has been softening, pay growth is slowing and growth data remains weak. This is likely to warrant further cuts, and we continue to expect the next cut in August,” BofA said.
“But stronger-than-expected inflation and sizeable upward revisions to recent payroll falls show that the data is not weakening enough for the BoE to accelerate cuts.”
Markets are close to fully pricing a rate cut in August, and see one more as likely by year-end.
But while a prospect of fewer BoE rate cuts would typically support the pound, its gains have been limited by the implications of higher borrowing costs for Britain’s public finances.
“The outlook for the UK appears much weaker than other major economies,” said currency analysts at Monex Europe. “We expect these building headwinds to weigh on the pound in the coming weeks.”
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