Sterling steady with key tests to come
By Samuel Indyk
LONDON, Sept 12 (Reuters) -The British pound was steady on Thursday after hitting a three-week low against the dollar the day before after data showed the UK economy stagnated in July, while focus turned to next week's key inflation print and central bank meeting.
Sterling GBP=D3 was little changed on the day at $1.3052 and trading in a tight range, just above the $1.30025 it reached on Wednesday, its lowest since Aug 20.
Data on Wednesday from Britain's Office for National Statistics showed no change in economic output in July. A Reuters poll of economists had forecast a 0.2% month-on-month expansion.
But while growth has stalled in Britain in recent months, the economy has still shown more robust growth than the euro zone since the beginning of the year.
"If we look at the PMIs (purchasing managers' indexes), we continue to see downside surprises for the euro area whereas you look at Britain and there are continued top side surprises," said Kirstine Kundby-Nielsen, FX analyst at Danske Bank.
Against the euro EURGBP=D3, the pound was also little changed at 84.4 pence before today's European Central Bank (ECB)interest rate decision, where a quarter-point rate cut is widely expected.
Meanwhile, the Bank of England meets next week, and futures markets imply around an 80% chance that interest rates remain on hold, after a 25 basis point rate cut in August.
"I think they will only deliver one more cut this year," Danske Bank's Kundby-Nielsen added.
"That will play an important role and is set to support the pound," she added, as the ECB and Federal Reserve look set to lower interest rates more aggressively.
The next key input for the BoE will be Wednesday's inflation data, released the day before its policy announcement.
UBS analysts believe headline inflation will remain steady at 2.2% but volatile components could lead to a pick-up in services inflation to 5.5%.
"We think the latest inflation prints should not have a significant impact on the MPC's assessment of the inflation outlook," UBS said, referencing the BoE's monetary policy committee.
"Against this backdrop, we expect the majority of the MPC to vote in favour of keeping rates on hold next week with a 7-2 vote split."
Graphic: World FX rates in 2023 http://tmsnrt.rs/2egbfVh
Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv
Reporting by Samuel Indyk
Editing by Christina Fincher
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
