June 28, 2022

Sterling Eying Tentative Rebound after Losing Streak

On Monday, there was a rise in the British pound, as the currency attempted to break past a losing streak of three weeks against the US dollar. This is because the policymakers of the Bank of England made some hawkish comments that gave the currency the support.

Central Bank May Raise Rates Faster

Catherine Mann, the Bank of England’s interest-rate setter, made a speech during afternoon trading. She said that the rates should be hiked up by the central bank faster than they have done so far because inflation pressures in the country were rising because of the weakness of the pound.

Last Thursday, the Bank of England announced that they were going to increase their benchmark interest rate by 25 basis points, which took it to 1.25%. The central bank also added that it was prepared to act ‘forcefully’ if required in order to mitigate the risks associated with inflation. Mann had been one of the three policymakers of the BoE who had voted in favor of an increase in interest rates by 50 basis points.

Now, investors have turned their attention towards a couple of economic indicators for getting a sense of how fast interest rates can be hiked up without dipping the economy into recession. This also includes the inflation data that is due on Wednesday.

Economy Could Fall into Recession

On Monday, the British government said that it does not expect the economy to enter into negative territory. However, a warning was issued last week by the Confederation of British Industry, which said that the economy could stagnate in the coming year and this could result in a recession.

According to expectations, an interest rate hike of half a percentage point is expected in August and there are 80% chances of this happening. By September, there could be an interest rate hike of 100 basis points and the odds could get higher, if inflation numbers turn out to be hotter than expected.

Market strategists said that the pound could be weak for a number of reasons, but the expectations of a high interest rate by the Bank of England have given it support for now, due to which the currency is stabilizing.

The pound had climbed by 0.13% against the US dollar at $1.2235, after losses for three consecutive weeks. Last week, Sterling had declined to a low last seen in March 2020 of $1.1934. Net short positions on the currency also declined for the third week in a row, as a few traders decided to reduce their bearish pound bets.

London Stocks Rise

Last week, the main share index in London had declined because of worries about a recession and bets of more hikes in interest rate. But, the FTSE 100 and the domestic FTSE 250 both climbed up on Monday by 0.3% each. This was because of a rise in energy stocks, as well as financials. The index got a reprieve after a poor performance last week and now focus is on the consumer price index data of the UK due this week.

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