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Sterling rally takes a break ahead of BoE meeting

© Reuters. FILE PHOTO: Pound and U.S. dollar banknotes are seen in this illustration taken January 6, 2020. REUTERS/Dado Ruvic/Illustration

By Joice Alves

LONDON (Reuters) – Sterling edged lower versus the dollar and was flat versus the euro as investors awaited Bank of England and European Central bank meetings, while a slump in tech stocks soured appetite for riskier currencies.

Sterling, which is considered a riskier currency, was fighting back against global markets pressures as stocks tumbled after shares in Facebook (NASDAQ:FB) owner Meta plunged more than 20% when its earnings and outlook fell short of expectations.

But capping sterling declines versus the dollar, there were expectations that the BoE will raise its interest rates as it meets at 1200 GMT.

Investors have now fully priced a 25-basis-point rise in the BoE’s main interest rate to 0.50% on Feb. 3 and economists polled by Reuters also expect that outcome from the meeting.

Versus the dollar, sterling edged 0.1% lower at $1.3550 at 0930 GMT, after rising for four consecutive days.

It was flat versus the euro at 83.29 after touching its highest level in almost two years of 83.05 earlier this week.

“Anything other than full hawkish mode from the BoE today could leave the pound on the back foot,” said Jane Foley, head of FX Strategy at Rabobank in London.

“Although we expect the BoE to hike rates both today and in May, in view of the drag on incomes from rising energy and food inflation, we see the market’s expectations regarding BoE rate hikes this year to be overdone,” she said.

ING strategist said it will take a closer look at BoE’s inflation forecast and whether the central bank expects prices to drop amid the markets’ forecast for a 1.50% bank rate by early next year.

“We doubt the BoE is unhappy with the aggressive market pricing given that it is generating a strong pound,” they told clients.

Policy decisions from European Central Bank (ECB) are due 1245 GMT, and a news conference with ECB President Christine Lagarde is scheduled at 1330 GMT.

Sterling rally takes a break ahead of BoE meeting

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