Pound halts decline before BOE decision, inflation forecasts

epa05175545 British Pounds in London, Britain, 22 February 2016. Sterling suffered its worst fall in over a year over fears that Britain might decide to leave the EU.  EPA/ANDY RAIN

 

Bloomberg

The pound halted a decline versus the euro before the Bank of England announces its latest policy decision and economic forecasts.
Sterling has weakened 0.8 percent versus the 19-nation shared currency this month, after strengthening in April in its first monthly gain since November. Its drop resumed as data from construction to manufacturing added to evidence that growth is slowing before Britain’s June 23 referendum on whether to withdraw from the European Union. All 41 economists in a Bloomberg survey forecast policy makers led by Governor Mark Carney will leave the rate unchanged Thursday. The central bank will also release its quarterly Inflation Report.
While the pound has borne the brunt of the uncertainty before the EU referendum, the nation’s government bonds have benefited due to their status as a haven asset and amid speculation that a vote to leave would hurt the economy, thereby prompting the BOE to hold the key interest rate at a record-low 0.5 percent for longer. Benchmark 10-year gilts fell for the first time in 11 days Thursday, ending the longest winning streak on record.
“Sterling’s still a vulnerable currency,” said Jane Foley, senior foreign-exchange strategist at Rabobank International in London. “There’s going to be more of a discussion about the downside risks, particularly given the sluggish nature of recent data. The tone will be fairly dovish, but not dovish enough to force someone to vote for an immediate rate cut.”
The pound strengthened 0.1 percent to 78.97 pence per euro as of 11:10 a.m. London time, after falling 0.4 percent on Wednesday, the most since May 3. The U.K. currency was little changed at $1.4446. It dropped to $1.3836 on Feb. 29, the lowest since March 2009.

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