BOE rate hike to determine pound’s path

Bloomberg

The pound’s near-term direction is likely to be driven this week by economic data that could determine whether the Bank of England raises interest rates within three months.
Traders will put most weight
on UK employment figures scheduled for Wednesday, with evidence of a pickup in earnings likely to push the pound higher as it spurs inflation beyond the post-Brexit currency effect.
Meanwhile, data due on Thursday will show gross domestic product grew 0.5 percent in the fourth quarter, according to economists in a Bloomberg survey. Pricing in money markets currently indicates a 78 percent chance that the BOE will raise rates by May.
The pound posted a weekly gain versus the dollar for the first time this month. It climbed back above $1.40 after the Monetary Policy Committee’s decision on February 8 boosted speculation of higher borrowing costs in the first half of this year. Inflation data also surprised to the upside, holding steady at 3 percent, well above the central bank’s target.
“The BOE surprised everyone by being so openly hawkish, so now every piece of data will be analysed as a ‘make or break’ for a May rate hike,” said Sonja Marten, a currency strategist at DZ Bank AG in Frankfurt, who sees the pound climbing to $1.45 in six months. “Sterling will obviously benefit from evidence that confirms the prospect for a rate hike.”
The pound climbed 1.6 percent last week to $1.4042 as of 4:04 pm in London, having dropped 2.4 percent in the previous two weeks.
Sterling was little changed at 88.65 pence per euro, halting a two-week decline.
Speculation of higher borrowing costs helped push the yield on benchmark 10-year bonds to 1.69 percent on February 15, the highest level since January 2016.