By Stefano Rebaudo
(Reuters) – Sterling fell to its lowest level since mid-March against a strengthening dollar while being close to its 2-week high versus the euro, with investors still focused on central banks’ monetary tightening.
European Central Bank policymakers appeared keen to unwind stimulus at their March 10 meeting, with some pushing for even more action, the accounts of the gathering showed, without affecting bets on future rate hikes significantly.
“The market’s dovish repricing of BoE rate expectations has been contained,” ING analysts said in a research note.
“This is offering some support to the pound in the crosses, and EUR/GBP may soon break back below 0.8300,” they added.
Bank of England Deputy Governor Jon Cunliffe said on Monday the central bank may not need to take sustained action to stop expectations of persistent high inflation.
Sterling was down 0.1% at 83.28 pence versus the single currency after hitting earlier in the session its highest level since March 23 at 83.07 pence
However, concerns about monetary tightening triggering a recession weighed on the pound.
“With luck, it (the market path of future rate rises) may reflect the view that the BoE will be able to ease rates a little once inflation has been brought under control, as it did on several occasions during the 1990s and 2000s when the BoE achieved a soft landing,” said Kallum Pickering, senior economist at Berenberg.
Sterling fell 0.3% against the dollar at $1.3050. It hit its lowest since November 2020 in mid-March at $1.3.
The greenback extended a relentless upward move on Friday, supported by the prospect of a more aggressive pace of Federal Reserve interest rates hikes.
Kit Juckes, a macro strategist at SocGen, flagged a strong correlation between U.S. 10-year real yields and the exchange rate between sterling and the U.S. dollar.
“It suggests fair value now for sterling is USD 1.30 exactly,” he said in a research note.
(Reporting by Stefano Rebaudo, Editing by Angus MacSwan)
