On Tuesday, the British pound made slight gains against both the US dollar and the euro. Traders were eagerly anticipating insights from Bank of England Chief Economist Huw Pill, scheduled to be shared later in the week. These insights were expected to shed light on the future course of action by the central bank.
At 1000 GMT, the sterling saw a 0.10% increase, reaching $1.2614. Against the euro, it experienced a 0.13% increase, reaching 85.75 pence. This uptick came after a recent dip that had brought it to its lowest value in two weeks against the euro just the previous day.
Francesco Pesole, an FX strategist at ING, noted, “The pound seems to be moving in line with other pro-cyclical currencies today. There isn’t much data from the UK this week.” Instead, he directed attention to upcoming non-UK data releases that are anticipated later in the week.
During the same trading day, global equities and other currencies that tend to strengthen in times of traders’ positive outlooks on the worldwide economy also experienced increases. Notably, the Australian dollar was among those showing gains.
Pesole expressed his expectation that the pound would outperform the euro against the dollar for the current week. This anticipation was based on his belief that Eurozone inflation figures, due this week, would exceed earlier expectations.
Traders currently seem to be factoring in a likelihood of over 90% for a 25 basis point interest rate hike by the Bank of England in its upcoming meeting on September 21st.
In its efforts to mitigate inflation, the Bank of England had raised the interest rate on August 3rd. This marked the 14th such increase since the end of 2021.
Huw Pill’s address is anticipated on Thursday morning, during the biennial conference of the South African Reserve Bank. This follows comments by Ben Broadbent, Deputy Governor of the Bank of England, over the weekend, suggesting that British interest rates might need to remain at elevated levels for a substantial period.
Nicholas Rees, an FX market analyst at Monex, speculated, “After Broadbent’s remarks in Jackson Hole, Pill might choose to reiterate the ‘high for longer narrative,’ which should in itself support the pound.”
However, Rees also added, “We don’t think this will automatically push GBPUSD back above 1.27, especially as recent British data suggests that the ‘higher’ level is below the terminal rate priced into GBP OIS.” This referred to the closely monitored swap curve that reflects expectations about future interest rates.
During this month, the British pound has already experienced a 1.7% decline against the US dollar.
