LONDON (Reuters) – Sterling fell on Wednesday for the fourth day in a row against a resurgent dollar and also slipped off 18-month highs versus the euro, with traders holding off major bets ahead of British GDP growth figures due a day later.
The pound slipped to a new two-week low against the dollar of $1.3813 as the greenback rose versus a basket of major currencies to approach its highest level for 2021.
Buoying the dollar has been impressive U.S. jobs data and remarks by Federal Reserve officials about tapering bond buying and, eventually, raising interest rates, sooner than policymakers elsewhere. U.S. inflation data later on Wednesday could heap more pressure on the Fed to unwind policy support.
But the pound has gained some support from last week’s Bank of England message that laid out a path to policy tightening. A fall in COVID-19 cases too has allowed Britain to lift most social distancing rules.
“If we get a run of really strong data from the UK over the next month or so, I suppose maybe we could see the market bring forward a little bit more the timing of the first 10 basis points of rate hikes from the BoE,” said Stephen Gallo, European Head of FX strategy for BMO Capital Markets.
UK second-quarter GDP figures due on Thursday could determine the currency’s direction, with a Reuters poll predicting a 4.8% expansion.
Against the euro, sterling slipped 0.1% to 84.77 pence., having risen on Tuesday to its highest since February last year. The euro was pressured by a ZEW survey showing a third straight month of deterioration in German investor sentiment.
Some analysts reckon the GDP data won’t buoy sterling much further. Deutsche Bank suggested UK growth would slow to around 2% in the next quarter.
“This would also spell some downside risks to the BOE’s current growth projections, which remain – in our view – too optimistic given the recent slowdown in economic momentum,” Deutsche said, predicting “a very different second-half story from the last 4-5 months.”
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