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UPDATE 1-Sterling shrugs on rising inflation, hovers below $ 1.42

By on May 19, 2021 0

* Chart: World exchange rates in 2020 tmsnrt.rs/2egbfVh

* Chart: British pound trade-weighted since the Brexit vote tmsnrt.rs/2hwV9Hv (Price updates, lede redesign)

LONDON, May 19 (Reuters) – The pound sterling fell slightly against the dollar rally and hit its lowest level in more than a week against the euro on Wednesday, after data showed a doubling of the dollar. consumer price inflation in Britain in April.

British consumer prices rose 1.5% in April, the Office for National Statistics said, after rising 0.7% in March. A Reuters poll of economists showed a 1.4% increase.

The Bank of England has said inflation in Britain is heading above its 2% target and will hit 2.5% by the end of 2021 thanks to higher global oil prices and the expiration in September of emergency COVID-19 value-added tax reductions in the hospitality sector, as well as comparisons with the 2020 pandemic crisis.

The BoE believes that inflation will then drop to 2% in 2022 and 2023.

The British pound was 0.3% lower against the dollar at 2:51 p.m. GMT, trading at $ 1.4149, below the $ 1.42 mark crossed on Tuesday.

Against the euro, the pound fell 0.3% to 86.39 pence, after hitting its lowest since May 10 against the single currency at 86.33 pence.

After the Canadian dollar and the Norwegian krone, the pound sterling is the third best performing G10 currency against the dollar since the start of the year, helped by hopes of an economic rebound made possible by the vaccination program fast from Great Britain.

The gradual reduction in its asset purchase program by the Bank of England also helped the pound rise against its counterparts in the G10 currency group, most of which have central banks that still maintain a loose monetary policy.

Money market pricing of the BoE’s rate hikes after the inflation data was just a shade higher. Futures contracts from May 2022 are now valuing around 6 basis points in cumulative increases so far, up from 5 basis points on Tuesday.

“As the Federal Reserve faces a similar dilemma, the market is starting to view the Bank of England as the most likely to blink first in the deadlock with inflation,” said Marc Cogliatti, chief financial officer. global markets at Validus Risk Management.

“The market now assesses 15 basis points of increases from the Bank of England by September 2022 compared to 12 basis points of increases from the Federal Reserve during the same period. As such, we have seen a slight narrowing of the interest rate differential between the pound and the dollar in the forex futures market, which in turn makes the pound more attractive (relatively speaking). “

Cogliatti did signal caution on the pound, however, due to the growing threat of the Indian variant of the coronavirus in Britain, the pound’s already high valuation against the dollar and market positioning.

Speculators are net long on the pound, having increased their net long position in the week until last Tuesday, CFTC data showed last week.

Reporting by Ritvik Carvalho; Editing by Alex Richardson and Jane Merriman