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Sterling Drifts Lower vs Dollar; BoE Speeches in Focus

LONDON (Reuters) - Sterling fell against a rebounding U.S. dollar on Wednesday but rose against the falling euro as traders looked to speeches from several Bank of England officials for direction.

Investors will be poring over speeches from five out of the nine Bank of England’s monetary policy committee members - including its governor Andrew Bailey - for any fresh insight into its stance on negative interest rates.

The BoE said last month negative rates are part of their monetary tool box but that it saw no immediate case to cut interests rates below zero.

Britain’s central bank has taken rates to record lows and ramped up bond purchases this year to support an economy hit by the coronavirus and the exit from the European Union.

The speeches “are likely to keep the debate on negative policy rates alive in the UK”, said Adam Cole, chief currency analyst at RBC.

Sterling fell 0.2% against the dollar to $1.3364, having risen to an eight-month high above $1.34 the day prior. The pound was up 0.3% against the euro at 88.74 pence, a three-month high.

“I wonder if yesterday’s GBP/USD move finally flushed out the last GBP shorts,” said Kit Juckes, macro strategist at Societe Generale.

Latest CFTC data showed that the leveraged funds held a very small amount of sterling short positions in the week ending Aug. 25. Fresh data which will include Monday and Tuesday this week will be released next Monday.

Trade-weighted sterling meanwhile remained range-bound, and well below its pre-Brexit referendum level. The fact that the real effective exchange rate in sterling is much lower than that in sterling/dollar indicates the recent sterling strength came solely on external factors.

“Sterling remains very weak in real effective terms which means it can only go down with the help of big short positions,” Juckes said.

Recent data painted a mixed picture of the economy.

British house prices hit an all-time high in August, mortgage lender Nationwide said on Wednesday, adding to signs of a sharp rebound in the housing market after the coronavirus lockdown.

The minister of finance, Rishi Sunak, cut a tax for house purchases in July as he sought to spark the broader economy which shrank by a record 20.4% in the April-June period.

But industry data on Wednesday showed retailers discounted their goods a bit more aggressively in August than in July as they sought to lure customers back after the coronavirus lockdown earlier in the year.

Reporting by Olga Cotaga; Editing by Ana Nicolaci da Costa and Chizu Nomiyama

Source: Reuters

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