Pound on backfoot as doubts rise on BoE rate hike in May

Reuters | | Updated on: Apr 20, 2018


The British pound flirted with two-week lows against the dollar on Friday following comments from Bank of England chief and soft UK retail sales data while the euro and the yen could see one of the narrowest weekly range in months.

Bank of England Governor Mark Carney dampened widespread expectations for an interest rate hike in May on Thursday, pointing out there were also “other meetings” this year. Disappointing UK retail sales released earlier on Thursday also raised some doubts about the outlook for UK rate hikes.

The British pound fell to a two-week low of $1.4069 on Thursday and last stood at $1.4079. Against the euro, it hit a three-week low of 0.87725 pound per euro and last stood at 0.8765. The euro traded at $1.2344, having dipped 0.24 per cent the previous day but still hugging its well-worn range.

In fact, so far this week it moved in a range of only 89 pips, or 0.89 cent, between $1.2414 and $1.2325, which would match the trading range in the holiday shortened first week of January, which was the tightest since August 2014. The euro changed hands at 132.64 yen, having hit a two-month high of 113.095 yen the previous day, supported by gradual recovery in risk appetite.

“I think the excessive nervousness about trade war and other political risks have eased a tad. Still, with G20 finance minister meeting planned this weekend,” said Kyosuke Suzuki, director of forex at Societe Generale in Tokyo.

The dollar firmed to 107.42 yen, edging near its seven-week high of 107.78 yen touched last week, after US President Donald Trump apparently made no new fresh demand at his meeting with Japanese Prime Minister Shinzo Abe earlier this week. Still the dollar/yen pair has been stuck in a narrow 0.725 yen range so far this week, which would be the tightest since the holiday-shortened last week of 2015.

The dollar has been marginally supported by a rise in US bond yields. The 10-year US Treasuries yield hit a one-month high of 2.934 per cent as higher oil prices fanned inflation expectations.

Elsewhere, the Swiss franc hit its lowest level in more than three years, sliding below 1.20 per euro for the first time since the Swiss central bank scrapped its ceiling for the Swiss currency in January 2015. The franc is in part weighed by expectations that the Swiss National Bank (SNB) will stick to loose monetary policy even as the ECB looks to wind down its stimulus.

Published on April 20, 2018
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