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Sterling bounces back

  • Posted by Shyam Gokani in Uncategorised
  • September 22, 2016
  • No Comments

Sterling rebounded from a five-week low against the dollar this morning, boosted by renewed weakness in the greenback after the Federal Reserve kept monetary policy steady and projected a less aggressive path for rate hikes in coming years.

While the Fed strongly signalled it could tighten monetary policy by the end of the year, policymakers cut the number of rate increases they expect this year to one from two. That put pressure on the dollar and helped relieve some of the selling that the pound had witnessed this week.

Investors will now focus on a speech from Bank of England chief Mark Carney in Berlin. Earlier this month, in a testimony to lawmakers he kept the door open for more monetary easing, despite recent UK data surprising on the upside.

We will be looking for signs on whether he thinks there is need for another rate cut soon.

Traders said gains in sterling are likely to be limited as worries over Britain’s exit from the EU and its impact on the economy have firmly come back on investors’ radar.

Late last week, sentiment towards the currency soured on a media report that said UK Chancellor of the Exchequer Phillip Hammond was ready to give up access to the single market to achieve immigration restrictions during the Brexit negotiations.

Analysts said the lingering uncertainty is likely to force the Bank of England to remain dovish and weigh on the currency.

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