Tuesday, 31 January 2017

Stumbling sterling heads for first three-day fall of year

Britain's pound fell on Monday, setting it on course for its first three-day fall against the dollar of the year and putting it on the back foot ahead of Thursday's first Bank of England meeting of 2017.

The BoE is widely expected to revise up its short-term growth and inflation forecasts following reassuring recent UK data, but the uncertainty surrounding soon-to-start Brexit negotiations is expected to keep it cautious.

Sterling was quickly down 0.3 percent against the dollar at $1.2510 in London, having slipped off a five-week high at the end of last week.

It dipped similar amounts against its other major FX peers, with the euro worth 85.39 pence and the pound fetching 143.64 yen, in what was its first fall against the safe-haven Japanese currency in five sessions.

Crédit Agricole FX Strategist Manuel Oliveri said his team expected sterling to struggle following a recent mini-rally, with Brexit uncertainty to remain the main driver and data also likely to weaken.

"We don't think the (BoE) inflation report will be a big shock," he said. "It may sound a bit more hawkish but it still remains cautious."

"A lot more is needed to push the needle" for the bank to start considering a move in interest rates, he added.

The pound has fallen roughly 19 percent against the dollar since June's Brexit vote, but for the last few months it has been in a relatively restrained range of between $1.20 and $1.28 and 84 pence and 88 pence per euro.

For companies it continues to have mixed effects.

Denmark's Novo Nordisk, the world's top maker of diabetes drugs, said on Monday it would invest 115 million pounds ($145 million) in a new British research centre.

Foreign exchange trading out of London rose 3 percent in October 2016 compared with a year earlier, but at $2.18 trillion a day it was still down from the equivalent six months earlier, a semi-annual survey by the Bank of England showed on Tuesday.

The survey also showed that the vigorous trading in the pound since Britain's surprise decision last June to leave the European Union drove an 8 percent rise in trading of the currency against the dollar, to an average of $281 billion a day.

Overall volumes were depressed by a continuing fall off in spot currency trading, the report's data showed.

Reference: Marc Jones

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