Sterling strengthened versus the dollar and euro on Thursday as comments from a Bank of England deputy governor and data highlighted inflationary pressure, a factor that could limit the extent of monetary easing.
A raft of negative data on the UK economy and poor results from UK retailers had led investors to price in as much as four rate cuts by the end of the year leading sterling to fall to all-time lows versus the euro.
However comments from BoE Deputy Governor John Gieve that inflation is set to rise well above target in the coming months were taken as a sign that rate cut expectations may be overdone.
"Gieve's comments contained a number of hawkish aspects," said Philip Shaw, chief economist at Investec.
"Providing Gieve's thinking is typical of the rest of the committee, yes interest rates are likely to fall again but there is certainly no guarantee that there is going to be an aggressive series of reductions."
At 1457 GMT the pound was up 0.7 percent versus the dollar at $1.9760 GBP -- on track for its biggest daily rise in percentage terms in over a month.
The euro fell as low as 74.16 pence, its lowest in two weeks
Data from the British Chamber of Commerce showing that more firms planned to up their prices at the end of last year than any time in the last decade, highlighted the need for the BoE to take a cautious approach, analysts said [ID:nL17164824].
Forecasters are also factoring higher inflation later in the year. Economists polled by Reuters have increased their inflation prediction to 2.3 percent in 2008 up from 2.1 percent predicted last month and above the 2.0 targeted by the BoE [ECILT/GB].
Investors will take further cues on the health on the UK economy and the potential for rate cuts from UK retail sales due out at 0930 GMT on Friday. (Reporting by Simon Falush; editing by Tony Austin)
Source:uk.reuters.com
No comments:
Post a Comment