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Sterling set for its biggest monthly drop since October 2016 vs dollar

Sterling set for its biggest monthly drop since October 2016 vs dollar

reuters.com · 04/29/2022 04:23
Sterling set for its biggest monthly drop since October 2016 vs dollar

- Sterling rose against the dollar on Friday, but was still set for its sharpest monthly drop since October 2016, while holding its ground against the euro.

The dollar edged down from its recent 20-year high while still on track for its best month since 2015, bolstered by a combination of expectations for U.S. rate hikes and growth concerns in China and Europe. nL2N2WR0J6

Investors' focus remained on monetary tightening ahead of next week's policy meeting of the Bank of England, which might cave in to the dovish minority, further weakening the pound.

The British public's expectations for inflation have fallen after rising for several months, according to a survey that the Bank of England keeps track of as it considers how fast it needs to keep raising interest rates. nL5N2WQ7Y0

Money markets are still pricing in around 145 basis points of further BoE tightening by the end of the year. IRPR

Some analysts argued that risk appetite more than monetary divergence would drive the British currency in the near future.

"Yield curves and equity markets are now bigger drivers of sterling than rate differentials. In other words, it looks as though sterling is being traded more on growth prospects," ING analysts said in a research note.

The pound was up 0.8% against the dollar at $1.2559, after hitting $1.2412 on Thursday, its lowest level since July 2020. It was set for its biggest monthly drop since October 2016 after falling more than 4.5% in April. GBP=D3

Investors wait for euro zone inflation data that might boost the single currency as surprises on the upside would support bond yields by boosting expectations of a quicker pace of monetary tightening by the European Central Bank.

Stronger than expected numbers might "carry EUR/GBP back to 0.8450/60, but a stronger EUR/USD could carry GBP/USD back to the 1.2570/2600 area on the day," ING analysts said.

The pound was up 0.1% against the single currency at 84.08 pence EUROGBP=.

Brexit headlines might return to the spotlight of pound investors as Britain and the European Union are at an impasse over changes to parts of the deal governing trade with Northern Ireland, Britain's Europe minister James Cleverly told a parliamentary committee on Thursday. nL5N2WQ4IP

(Reporting by Stefano Rebaudo, editing by Tomasz Janowski)

((stefano.rebaudo@thomsonreuters.com ; +39. 0266129431; Reuters Messaging: stefano.rebaudo.thomsonreuters.com@reuters.net))