LONDON – Sterling ticked higher against the dollar on Monday, with market moves largely driven by news of a surprise announcement from OPEC+ of more production cuts which sent the price of oil and the dollar sharply higher earlier in the session.
By 1030 GMT the pound was up 0.18% against the dollar which trimmed gains, at $1.2352. The pound, meanwhile, was virtually unchanged against the euro at 87.96 pence.
“The impact overnight in the Asian session was one of higher oil after the OPEC cuts, meaning lower chances of rate cuts by the Fed and so a higher dollar. But now the dollar is coming off again,” said Francesco Pesole, FX strategist at ING.
With little in the way of UK-specific data this week, attention is staying on the Bank of England’s rate outlook and the UK’s economic outlook.
“The pound is the best performing currency of the year which is somewhat surprising, the economic backdrop is not exciting. The Bank of England is still hiking but it is nearing the end of its hiking cycle,” said Pesole.
The pound ended March with its biggest monthly gain in four months of 2.6%.
“At the same time, the pound went through the banking shock very well and it proved to be very resilient,” said Pesole.
British inflation is around 10.4% – over five times the Bank of England’s target rate of 2% and the highest among the Group of Seven rich nations.
The BoE has raised interest rates 11 times in a row with its next meeting set for May. Markets are pricing in a 66% chance of a further 25 bp hike from at its next meeting, and a 34% chance of no change.
Traders will be listening carefully to a speech due from Bank of England chief economist Huw Pill on Tuesday evening for more hints on the central bank’s next move.
(Reporting by Lucy Raitano; Editing by Ed Osmond)
