Sterling strengthens on bets for BoE tightening

[LONDON] Sterling crept back towards US$1.30 against a weaker US dollar on Thursday, building on the previous day's gains after marginally better than expected labour market data kept bets for a tightening of Bank of England policy on the table.

BoE policymaker Ian McCafferty told The Times newspaper in on Thursday that the central bank should consider unwinding its £435 billion (S$772 billion) quantitative easing programme earlier than planned.

But Mr McCafferty's views do not represent the consensus on the Bank's Monetary Policy Committee (MPC). He was one of three who voted in favour of an interest rate increase last month, with five voting against.

On Wednesday the Bank's Deputy Governor Ben Broadbent said he was not yet ready to raise rates, which seemed to run contrary to warnings from other policymakers at the central bank in recent weeks that rates could be lifted soon. Such remarks had pushed sterling above US$1.30 at the end of June.

Investors are split on whether the BoE will raise interest rates by the end of the year, following in the footsteps of the US Federal Reserve, which has lifted rates twice this year, and the Bank of Canada, which increased rates on Wednesday.

"The market is 50 per cent priced for a hike by the end of the year - we think that overstates the risk," said RBC Global Markets strategist Adam Cole.

Sterling was up 0.4 per cent on the day at US$1.2936 by 0800 GMT.

Against the euro it was up almost half a point at 88.22 pence, having hit an eight-month low against the single currency the previous day before strengthening on data showing wage growth still lagging inflation.

"The BoE appears likely to be the next G10 central bank to begin raising interest rates, which should offer more support for the pound heading into year-end," MUFG strategists wrote, adding that the British economy is holding up better than expected since the vote to leave the European Union.

REUTERS