Sterling opened higher on Monday ahead of the Bank of England’s (BoE) rate decision and inflation data expected later this week. This was despite the recent troubles of the Swiss lender Credit Suisse and the collapse of some regional U.S. banks that continue to rattle global financial markets.
The Swiss government-backed takeover by UBS of Credit Suisse failed to soothe market nerves, weakening the dollar. As money markets continue to be shaken by the uncertainty, a 50% chance of no interest rate hike by the BoE on Thursday and the same chance of a 25 basis-point increase is being priced in.
Sterling was up 0.5% against the U.S. dollar to $1.2240, briefly touching its highest level against a weakening greenback in more than a week. However, it remained flat against the euro at 87.55 pence.
Experts in the industry believe that the inflation data due on Wednesday could give further clues about the rate hike decision. Although some expect the data to show some easing, Jeremy Stretch still expects a 25bps rate hike by the BoE.
Stretch believes that the banking sector remains well capitalized, and this should bolster the confidence of the BoE in increasing interest rates. He also states that the combination of factors suggests that the recent resilience of the pound sterling is set to remain in place.
Reuters conducted a poll with economists, and they expect the year-on-year CPI inflation figure to fall to 9.9% in February from 10.1% in January. Goldman Sachs, on the other hand, stated that it sees no economic growth in Britain this year. Therefore, it no longer expects the BoE to hike its policy rate in May, leaving its terminal rate forecast for BoE at 4.25%.
Apart from the BoE rate decision and inflation data, UK politics is also in focus. A member of the British parliament for Northern Ireland’s Democratic Unionist Party said he would vote against a central element of the government’s recent deal with Brussels on post-Brexit trade rules. He expects his colleagues to do the same, and British lawmakers will debate on Wednesday the so-called “Stormont brake,” a key part of the deal announced last month that enables Britain to stop new European Union laws from applying to goods in Northern Ireland if so requested by a third of lawmakers in the province’s devolved legislature.
In conclusion
Despite the global financial market instability, Sterling remains steady ahead of the BoE rate decision and inflation data due this week. The outcome of the UK politics debate is also something to watch out for as it could impact Sterling’s performance in the near future.
