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Updated January 10th, 2024 at 17:57 IST

Sterling steadies ahead of BoE chief testimony to lawmakers

The pound showed a marginal 0.14 per cent uptick against the dollar, reaching $1.2728.

Business Desk
Sterling falls
Sterling | Image:Pexels
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Sterling stable: The British pound stabilised ahead of Bank of England (BoE) Governor Andrew Bailey's scheduled address to British lawmakers on Wednesday, a speech anticipated by markets seeking insights into future monetary policy directions.

At 1415 GMT, Bailey and senior central bank officials will field questions from the Treasury Committee regarding the Financial Stability Report.

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"Comments about inflation or interest rates could strongly influence sterling's movement," highlighted Fiona Cincotta, Senior Financial Market Analyst at City Index.

Sterling showed a marginal 0.14 per cent uptick against the dollar, reaching $1.2728. Against the euro, it remained relatively unchanged at 86.04 pence after a recent surge to nearly a one-month high on Tuesday.

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Market sentiment supporting sterling has emerged with reduced expectations of BoE rate cuts this year. Money markets presently indicate an expectation of approximately 115 basis points (bps) of BoE rate cuts in 2024, a decline from 140 bps observed last Thursday based on money market pricing.

Future monetary policy

Francesco Pesole, FX strategist at ING, foresees Bailey's tone aligning with his recent BoE meeting statements regarding future monetary policy.

The BoE has signalled its intent to sustain elevated rates to manage the aftermath of the 2022 inflation spike.

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"Pouring cold water on rate-cut speculation has been Bailey's focus," Pesole noted.

Although UK inflation fell to 3.9 per cent in November from 4.6 per cent in October, marking the highest among G7 nations, Bailey's testimony precedes a crucial UK gross domestic product (GDP) reading due on Friday. This release is expected to reveal a 0.1 per cent contraction in the economy for the three months leading up to November.

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While earlier official data suggested a potential mild recession in the UK, recent business surveys suggest a more resilient economy in December than initially feared.

Despite the immediate outlook, Pesole maintains the expectation that deteriorating economic conditions in the UK could necessitate substantial BoE rate cuts, projecting 100 bps in BoE cuts for 2024, according to ING's assessment.

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(with Reuters inputs)

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Published January 10th, 2024 at 17:57 IST

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