Sterling close to 11-month highs as BoE, services PMI eyed

[LONDON] Sterling traded close to an 11-month high against the US dollar hit in the previous session on Thursday, as traders looked to a Bank of England policy decision for a steer on when interest rates might be hiked from their current record lows.

Before that decision, due at 1100 GMT, focus was on the latest reading from Britain's dominant services sector, due at 0830 GMT and expected to show activity ticking up slightly from June's four-month low.

Sterling was up 0.1 per cent on the day by 0745 GMT at US$1.3231, close to Wednesday's high of US$1.3250. It was up 0.2 per cent against the euro at 89.50 pence.

"We expect the BoE to signal that it is moving closer to raising rates," said strategists from MUFG, one of the banks that is most upbeat on sterling's prospects, seeing it at US$1.40 by the second quarter of next year. "For the pound to strengthen significantly today it will likely require the BoE to give a stronger signal that a hike could come as early as in November, in line with our expectations," they added.

A run of softer data - along with deep uncertainty about the way Brexit will play out and its impact on the economy - has cooled speculation that the BoE is poised to lift rates for the first time in over a decade, which followed hawkish remarks by policymakers at the bank in recent months.

Investors expect policymakers to vote 6-2 in favour of keeping rates unchanged. At the last meeting, three rate-setters voted for a hike, but one, Kristin Forbes, has since departed.

"The consensus is for the Bank to keep its policy unchanged via a 6-2 vote. Given that the votes are the first piece of information we get, we expect the initial reaction in sterling to depend primarily on that, and subsequently, on what signals policymakers send regarding the likelihood of a rate hike this year," said IronFX analyst Charalambos Pissouros.

REUTERS