Sterling holds above $1.36 as GDP data leaves rate rise bets unchanged

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*Graphic: World FX Rates in 2021 tmsnrt.rs/2egbfVh

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*Graphic: trade-weighted sterling since the Brexit vote tmsnrt.rs/2hwV9Hv

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LONDON, Oct 13 (Businesshala) – Sterling rose higher on Wednesday as traders assessed data showing the British economy in August was slightly below consensus, not enough to dampen hopes that the Bank of England (BoE) will increase the rates.

The Office for National Statistics said the UK economy grew 0.4% in August, just 0.8% smaller than in February 2020. Economists polled by Businesshala had forecast a 0.5% increase in monthly GDP for August.

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ING told clients in a note this week that economic data, including UK jobs figures for September, which largely came in line with forecasts, “are prompting markets to reduce their aggressive pricing for the Bank of England”. No reason given”.

The BoE, which is facing a surge in inflation, is set to become the first major central bank to raise interest rates since the start of the pandemic. Investors are betting on a gain of 0.15% by December.

The pound hit a two-week high of $1.3674 against the dollar on Monday after BoE Governor Andrew Bailey stressed the need to prevent inflation from becoming permanently embedded, and fellow policymaker Michael Saunders said. Households should be prepared for interest rate hikes “quite early”.

At 0825 GMT, sterling was up 0.3% versus the dollar to $1.3635. Against the euro, it rose 0.1% to 84.75, not far from a two-month high this week.

But some analysts have pointed out that sterling has failed to react to new post-Brexit disputes over the Northern Irish Protocol, which regulates trade in the province.

“I think Brexit and trade should be a bigger issue than the GBP,” said Marshall Gittler, head of investment research at BDSwiss Holding.

British Brexit minister David Frost told the European Union on Tuesday that significant post-Brexit rules changes were the only option to take the poison out of their ties.

The European Commission will give Britain a package of measures to ease the transit of goods across Northern Ireland later in the day. (Reporting by Joyce Alves Editing by Robert Birsel)

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