LONDON, Jan 26 (Reuters) – Sterling edged up against the
dollar and euro on Friday, as traders looked ahead to a Bank of
England policy meeting next week that will likely set the tone
for the currency in the coming weeks.
The Bank of England (BoE) is expected to hold interest rates
at 5.25% on Feb. 1, but any guidance on the timing of rate cuts
will be watched closely.
Sterling was last up 0.2% against the dollar at $1.27295.
The euro was down 0.1% to 85.31 pence.
Britain’s economy started 2024 on a stronger footing,
according to a survey of businesses published on Wednesday,
prompting investors to reduce their bets on the BoE moving
quickly to cut interest rates.
Money markets are currently pricing a 42% chance of a cut in
May, while June is given a 74% chance.
“Despite our view that the tightening cycle is now at an end
and the February meeting will begin the pivot towards an easing
bias, we do not think that this will be enough for investors to
conclude that rate cuts are imminent,” currency analysts at Bank
of America said in a note on Friday.
“Indeed, we continue to believe that the UK rates markets
remains overly optimistic in its expectation for a 25bps rate
cut in May.”
The U.S. dollar index was last down 0.2% ahead of key
inflation data later in the day, as traders weighed how the U.S.
economy’s faster than expected growth would influence Federal
Reserve thinking on interest rate policy.
The European Central Bank held rates as expected on
Thursday, and comments from its president Christine Lagarde that
seemed less worried about the inflation outlook added to bets on
a rate cut in April.
(Reporting by Iain Withers
Editing by Mark Potter)
