LONDON: The pound stabilised on Wednesday as traders looked to fine-tune positioning ahead of Thursday’s important Bank of England meeting, but remained at close to a seven-month low against the dollar and its weakest in well over two years against the euro.
A day ahead of the BoE meeting, markets are still pricing around a one-in-three chance of a 25-basis-point rate cut, leaving scope for a knee-jerk reaction in the pound in either direction depending on the outcome.
Sterling was last up 0.2% on the dollar at $1.3049 , though it hit $1.3011 in early Asia trade, its lowest since mid-April.
Similarly, the euro was down 0.1% at 88.07 pence after hitting 88.3 pence in Asia trade, its highest since May 2023.
A raft of data released last month, most notably cooler-than-expected inflation figure, caused markets to raise bets on BoE easing, and weighed on the pound.
It has continued to weaken this week, and Chris Turner global head of markets at ING said in a note this might “probably have more to do with the global equity correction,” given BoE expectations have been fairly steady most recently. Stocks around the world, particularly highly valued tech names, have come under pressure this week.
All else being equal, the pound typically performs well when investors are positive about global growth and the stock market, and comes under pressure when they are not.
Also in the mix for sterling investors is Britain’s budget, due later this month. Finance Minister Rachel Reeves, in a speech on Tuesday, paved the way for broad tax rises. If that weighs on growth, it could cause the BoE to ease rates more quickly, in turn dragging on sterling.
There was little British economic data on Wednesday, but a survey showed pay settlementsawarded by British employers held steady in the three months to September, holding at the joint lowest level since December 2021.
