• Sterling up vs dlr on better risk appetite, BoE comments
• BoE’s Sentance: high inflation poses rates dilemma
• UK Office for Budget Responsibility forecasts in focus
Sterling rose against the dollar on Monday, lifted by hawkish comments from Bank of England policymakers warning of rising inflation and highlighting the possibility of UK interest rates rising later this year. The pound rose in tandem with gains in the euro against the dollar and in equities on renewed optimism about the global economic outlook.
Investors were cautious, however, ahead of the release of growth and borrowing forecasts from the newly created Office for Budget Responsibility at 0900 GMT, which will shed light on how tough the British government’s austerity drive is likely to be. BoE policymaker Andrew Sentance said in an article in the Sunday Times newspaper that Britain’s economic recovery and resilient inflation questioned how long a highly expansionary monetary policy would remain appropriate. The BoE’s chief economist Spencer Dale also said the UK’s economic recovery was likely to gather pace this year and highlighted a risk that inflation could stay higher for longer. Inflation data is due on Tuesday. Although it is expected to show the headline annual CPI rate dipping to 3.5 percent in May, this would still be well above the BoE’s 2 percent target.
At 0801 GMT, sterling rose 0.8 percent against the dollar to $1.4652 as improved sentiment towards riskier assets hit the safe-haven U.S. dollar and prompted short-covering in sterling and the euro. Traders said talk of offers at around $1.4680 and $1.4700 may help cap gains, however. The euro fell 0.2 percent to 83.06 pence. While below resistance at 84.00 pence,gains for the euro should be limited, technical analysts said.
Investors remained cautious, however, due to concerns about how the UK will weather sizeable fiscal tightening to come, with Commodity Futures Trading Commission data showing speculators boosted bets against sterling in the week to June 8.
Monday’s forecasts from the fiscal policy watchdog are expected to pour cold water on the previous Labour government’s hopes for a powerful recovery and hint at the scale of spending cuts and tax hikes the new government will seek to implement. The forecasts come ahead of next week’s budget presentation by Finance Minister George Osborne.
Exchange Rates:
GBP – EUR: 1.2044 GBP – JPY: 135.00 CAD – USD: 0.9717
GBP – USD: 1.4682 EUR – USD: 1.2207 GBP – ZAR: 11.248
GBP – AED: 5.393 EUR – JPY: 112.22 AUD – USD: 0.8581
GBP – CHF: 1.6771 EUR – AUD: 1.4274 GBP – NZD: 2.116
GBP – AUD: 1.7142 EUR – NZD: 1.7626 GBP – CAD: 1.5145
JPY – USD: 0.0109
The rates above are for indication purposes only. Price can vary dramatically based on amount and delivery date.
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Key Sources: Currencies 4 You, Bloomberg, Reuters, Daily FX
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