LONDON: Sterling slipped to a one week low against the US dollar today, ahead of the Bank of England’s expected 10th consecutive interest rate hike, and as the International Monetary Fund warned about Britain’s economic outlook.
The Bank of England (BoE) is expected to raise its interest rates by half a percentage point to 4% on Thursday in a week packed with central bank decisions, with the US Federal Reserve and the European Central Bank (ECB) expected to hike interest rates on Wednesday and Thursday, respectively.
Adding to the downbeat sentiment, Britain was the only Group of Seven nation to suffer a cut to its 2023 economic growth outlook by the International Monetary Fund (IMF) on Tuesday.
The pound was down 0.3% to US$1.2314 against the dollar at 1150 GMT, but was still on course for its fourth consecutive monthly gain, up 1.8% against the greenback in January.
It was slightly softer against the euro, down 0.1% at 87.94 pence, not too far from a one-month high against the single currency hit earlier this month..
“The BoE meeting on Thursday is containing any large moves in sterling at the moment. But today’s data will certainly not have inspired much confidence in the outlook for the UK economy going forward, and I think this is weighing on the pound,” said Stuart Cole, head macro economist at Equiti Capital.
Markets are currently placing a 84% chance of a 50 basis point rate hike at Thursday’s BoE meeting.
ING strategists said they expected BoE’s decision to have a broadly neutral impact on the pound against the dollar.
“Sterling/dollar moves may be mostly dictated by the FOMC reaction,” wrote ING analyst Francesco Pesole in a note, referring to the Federal Reserve’s rate decision.
Against the euro, ING expects sterling to hold below 88.00 pence until Thursday, “although inflation figures in the euro zone mean the balance of risk is tilted to the upside for the pair,” wrote Pesole.
Data in focus
British grocery inflation hit a record 16.7% in the four weeks to Jan 22, dealing another blow to consumers battling an escalating cost-of-living crisis, industry data showed today.
On a brighter note, a survey showed the British public’s predictions for inflation cooled again in January. The news is likely to provide comfort that high prices will not become permanently embedded in expectations as BoE policymakers mull how far to hike rates in the battle to bring down inflation.
But concerns of a recession remain in focus, with numbers showing mortgage approvals slumped in December to levels seen during the global financial crisis, hinting that the housing market is slowing much faster than the consensus predicted.