UPDATE 1-Sterling clings to 8-month highs vs euro, falls vs dollar ahead of BoE meeting
* Graphic: World FX rates in 2020 tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv (Adds quote, charts. Updates headline)
LONDON, Feb 3 (Reuters) – Sterling edged lower against a stronger dollar on Wednesday but was little changed versus the euro ahead of a Bank of England meeting this week, while Britain’s COVID-19 vaccine roll-out offered some support to the pound.
The pound has gained broadly in the past few weeks amid optimism over Britain’s successful COVID-19 inoculation programme, with analysts pinning their hopes on a faster economic recovery than in the European Union, where vaccine roll-out is lagging.
Market participants are focusing on the Bank of England’s meeting on Thursday at which it is set to publish the findings of a consultation on what negative rates would mean for banks’ operations.
“I can see a fairly quiet day for sterling being on the cards given the magnitude of tomorrow’s Bank of England meeting,” said Simon Harvey, senior FX market analyst at Monex Europe in London.
Sterling was flat at 88.11 pence versus the euro at 1050 GMT, not far from a eight-month high reached in the previous session against the single currency.
Against a stronger dollar, it was down 0.2% at $1.3639, after touching a one-week low against the greenback on Tuesday.
With improved sentiment, most economists polled by Reuters said there is little chance the Bank of England will move to cut rates below zero this year.
Britain’s third national lockdown has put the economy on course for a sharp contraction in early 2021, but services companies – buoyed by progress on vaccinations – are confident about recovery, the final version of the IHS Markit/CIPS UK Composite Purchasing Managers’ Index showed.
Yet, “there are likely to be pitfalls for the bulls,” said Jane Foley, head of FX strategy at Rabobank.
Amid the optimistic story about the pound, dire economic data in the first quarter of 2021 and issues surrounding the Northern Ireland border suggest the national lockdown and Brexit will likely cast a shadow for some time on the pound, she added.
“There is plenty of reason to expect a choppy outlook for GBP”.
Health Secretary Matt Hancock said much of the attention need to be directed to any mutations of coronavirus that have been detected in recent days.
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