Sterling Weak Against the Dollar Ahead of BoE Policy Announcement

Sterling bounced against the US dollar in the London session on Tuesday, following a crash the day before, and sustained a decline against the euro as the EUR/GBP pair rebounded.

The British pound has traded in the mercy of the greenback’s strength for the past few days causing the cable to slump to the 1.3082 level, its lowest point since last November, in the Asian session on Tuesday. That said, the pound has recovered slightly from the dip as it trades around the 1.3120 level at press time.

Against the euro, the pound resumed its decline against the single currency on Tuesday after reversing from its strongest level against the euro since June 2016 yesterday. This momentum comes partly from the mixed policy expectations from the Bank of England (BoE) and European Central Bank (ECB).

That said Lloyds Bank analysts argue that the main focus in the market right now is the spike in energy prices. The analysts noted:

“The big question is whether central banks will primarily see this as a further indication of inflationary pressures that need to be responded to with tighter monetary policy or as an escalation of the downside risks for economic growth.”

Sterling Traders Price In BoE Interest Rate Hike

At the moment, markets are pricing in an interest rate hike from the BoE later this month and a total of 1.45% tightening this year compared to the 0.25% interest rate hike projected by the ECB in 2022.

That said, ECB policymakers are currently in a blackout period ahead of the policy announcement this Thursday. The BoE should go into its blackout period anytime after today ahead of its policy announcement scheduled for next Thursday. In the meantime, there are no scheduled speeches for BoE rate-setters today.

In other news, two surveys show that Britain citizens’ spending jumped in February after COVID-19 restrictions eased.