UK's pound still close to strongest against the euro


London, Aug 9 - The pound struggled to gain momentum on Monday but was still close to its strongest versus the euro since February 2020, as investors focused on the possible pace of fiscal policy tightening after last week's Bank of England meeting.

In recent weeks, the UK has outperformed with COVID - 19 cases fallen and high vaccination rates have allowed the British government to lift most social distancing rules.

The pound has been stronger since February 2019 against the Euro for three weeks in a row and had reached 84.7 pence per euro on Friday, its strongest since February 2020.

It opened slightly lower on Monday, but then crept up during the morning session. Currency markets were digesting a strong U.S. jobs report on Friday, which prompted investors to bring forward their bets on the Federal Reserve tapering its pandemic stimulus and sent the dollar against the Euro during Asian trading.

At 1101 GMT the pound was flat the day at $1.388 on the pound. On the Euro, it was up by less than 0.1%, with 84.675 pence per euro.

The Bank of England - Committee voted 7 - 1 on Thursday to maintain the pace of its government bond buying, even though it expects inflation to jump to 4.0% around the end of the year. It also said some modest tightening of monetary policy over its three-year forecast period was likely to be necessary.

Goldman Sachs FX strategists wrote in a client note that they upgrade their euro-sterling forecasts to 0.85 for three and six months.

We expect the currency to be particularly sensitive to data on inflation and labor market as the furlough scheme expires, they said.

Speculators have sold their short position on the pound in the week ended Aug. 3 with weekly CFTC position data, leaving the market's overall neutral position close to net.

Hawkish remarks from two MPC members in the middle of July translated into a more hawkish slant from the BoE policy meeting in early August, which wrote Rabobank FX strategists on a client note.

This is likely to support net GBP positions in the next set of data.

The Sunday Times reported that the Prime Minister's office has boarded Rishi Sunak.

Sunak is seen as one of the rising stars in the Tory Party and a safe pair of hands at the Treasury, such that any demotion could briefly hit GBP, wrote ING FX strategists.

These are quiet summer markets and FX traders will likely focus their attention on what any fresh inputs mean to the new hawkish policy from the Bank of England.

The preliminary GDP reading for the second quarter of the year by the UK is due on Thursday.