UK's pound edged ahead of key central bank policy meetings

110
2
UK's pound edged ahead of key central bank policy meetings

The sterling edged up on Wednesday but remained within a three week low against the dollar and the euro, ahead of important central bank policy meetings in Britain and the United States.

Analysts think the Federal Reserve will end its bond purchases on Wednesday as policymakers shift their focus towards what to do about a surge in inflation.

The Bank of England is going to take its most unpredictable rate decision in years on Thursday.

It was not far from the low of $1.3606 hit on Oct. 13 when sterling rose to $1.365.8 by 1551 GMT. It was up by 0,3% against the euro at 84.79 pence.

According to PMI data released on Wednesday, British businesses reported faster growth in October, suggesting the economy gained momentum last month despite supply chain disruptions.

Sterling traders are interested in the Fed's inflation outlook and whether its timeline for rate normalisation might encourage the BoE to delay hiking.

ING said that the euro euro could correct to 0,8500 on our baseline scenario of a split BoE vote to increase and some indirect protest on the current market pricing of future interest rates via the consumer price index CPI forecast.

It's slightly higher - e.g. 0.8540 60 - could be seen on BoE-day tomorrow they added.

The short trade idea targeting 1,3450 is likely to generate sterling strength, they said, along with a short UK-USD trade idea.

The pound would have to move beyond its recent highs around 1,3850 until the market expects a more sustainable hiking cycle they added, but even in the more hawkish outcome, because of a rate increase without the BoE pushing back market expectations.

The pound was weighed on by a calmer tone over fishing between London and Paris, as French transport minister Jean-Baptiste Djebbari said Britain had shown a constructive spirit in the talks.

Ireland's prime minister warned that Britain could be going to suspend part of the Northern Irish protocol in its Brexit divorce deal.