UK pound holds near best level since early 2020, but falls against Dollar

UK pound holds near best level since early 2020, but falls against Dollar

LONDON, November 22, Reuters -- The British pound held near its strongest level since early 2020 against the euro, but it fell against the dollar, which is supported by bets on Fed policy tightening.

The pound was a tad weaker against the dollar, at $1.3424, off the $1.3354 low hit last week.

There is a focus on whether or not the Bank of England will raise interest rates at its December meeting.

Andrew Bailey, Governor of BoE, said in an interview with the Sunday Times that the inflation outlook could be raised for longer, but there is also a chance that inflation does not prove as persistent as feared.

Analysts at CBA said market pricing for a December BoE rate hike was not materially impacted by BoE Governor Bailey's somewhat dovish comments on the weekend.

Bailey noted that the risks to the BoE's inflation forecasts were two-sided. His comments suggest that there may be a higher hurdle to a December rate hike than many expect. After comments from Bailey in late October, markets interpreted it as a signal that a rate hike was very near, the BoE wrong-footed many investors earlier this month when it did not lift rates from their record low of 0.1%.

Since the end of the furlough scheme, inflation has risen to a 10 year high of 4.2% and jobless data has not pointed towards higher unemployment, a concern that stayed the BoE's hand in November.

According to the latest positioning data from Chicago futures markets, hedge funds have been shunning sterling with funds the most bearish on the pound since June last year because of the confusion over when the BoE will move.

The data showed that hedge funds and speculators increased their net short position to 31,599 contracts in the week to November 16 from 12,093 the week before.

Two weeks earlier, funds were net long more than 15,000 contracts, a total of $1.3 billion bet on the currency.