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Sterling clings to 8-month highs vs euro, falls vs dollar ahead of BoE meeting

Joice Alves
Updated ·2-min read
FILE PHOTO: Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company's headquarters in Vienna (Reuters)

By Joice Alves

LONDON (Reuters) - Sterling edged lower against the dollar on Wednesday but was little changed versus the euro ahead of a Bank of England meeting this week, while Britain’s COVID-19 vaccine rollout offered some support to the pound.

The pound has gained broadly in the past few weeks amid optimism over Britain's successful COVID-19 inoculation programme, with analysts pinning their hopes on a faster economic recovery than in the European Union, where the vaccine rollout is lagging.

Market participants are focusing on the Bank of England's meeting on Thursday, at which it is set to publish the findings of a consultation on what negative rates would mean for banks' operations.

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Simon Harvey, senior FX market analyst at Monex Europe in London, said the "quiet day for sterling" was justified by "the magnitude of tomorrow's Bank of England meeting".

Sterling was 0.2% higher at 87.98 pence versus the euro at 1547 GMT, not far from a eight-month high reached in the previous session against the single currency.

Graphic: Sterling Feb 3 - https://fingfx.thomsonreuters.com/gfx/mkt/oakpeykokpr/Sterling%20Feb%203.png

Against the dollar, it was down 0.2% at $1.3645, after touching a one-week low versus the greenback on Tuesday.

With improved sentiment, most economists polled by Reuters said there is little chance the Bank of England will move to cut rates below zero this year.

Britain's third national lockdown has put the economy on course for a sharp contraction in early 2021, but services companies - buoyed by progress on vaccinations - are confident about recovery, the final version of the IHS Markit/CIPS UK Composite Purchasing Managers' Index showed.

Yet, "there are likely to be pitfalls for the bulls," said Jane Foley, head of FX strategy at Rabobank.

Amid the optimistic story about the pound, dire economic data in the first quarter of 2021 and issues surrounding the Northern Ireland border suggest the national lockdown and Brexit will likely cast a shadow for some time on the pound, she added.

"There is plenty of reason to expect a choppy outlook for GBP."

Health Secretary Matt Hancock said attention needs to be directed to any mutations of the coronavirus that have been detected in recent days.

(Editing by Angus MacSwan, Giles Elgood and Sonya Hepinstall)