January 20 Reuters -- Sterling hit a fresh 23 month high and rose against a weakening dollar on Thursday, still supported by expectations of rate rises, but analysts doubt whether Bank of England BoE will be able to provide a hawkish surprise at its February meeting.
Money markets are currently price in more than 100 basis points bps in interest rate rises in 2022 and an 87% chance of a 25 bps increase in February, after data showed on Wednesday that UK inflation rose faster than expected in nearly 30 years in December.
Domestic politics did not hurt sentiment, although Prime Minister Boris Johnson was trying to save his prime ministership amid a deepening revolt within his party over a series of lock-down parties in Downing Street.
The pound rose 0.3% against the euro to a new 23 month high of 83.07 pence at 1528 GMT.
There is a possibility that the BoE will be disappointed by the market by acting less decisively at its February meeting, according to Commerzbank analysts.
The market's rate speculations might be able to provide more support. The risk of profit-taking is likely to increase, they added.
Commodity prices boosted riskier currencies while the dollar index fell.
The pound was up 0.15% against the dollar at $1.3636.
Political risk has not hurt GBP, which is where the focus remains on whether the BoE hikes 25 bp on February 3, ING analysts said, and they continue to favour EUR GBP drifting to the 0.8270 80 area. Berenberg economists think a change in prime minister is positive for UK markets as the Conservative party would choose his replacement based on who would have the best chance of beating Labour leader Keir Starmer in an election.
They mentioned finance minister Rishi Sunak, foreign minister Liz Truss and chair of the Health and Social Care Committee Jeremy Hunt.
They argued that a new premier would follow similar policies to Johnson in a much calmer and more deliberate fashion. A senior Conservative lawmaker accused the British government on Thursday of intimidating and trying to blackmail lawmakers they suspect of wanting Johnson out of power.