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Sterling flat versus dollar near 16-month low

© Reuters. FILE PHOTO: Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company’s headquarters in Vienna, Austria, November 16, 2017. REUTERS/Leonhard Foeger

By Samuel Indyk

LONDON (Reuters) – The British pound was little changed against the U.S. dollar on Friday, holding near a 16-month low and on track for a third consecutive weekly decline as stronger-than-expected UK economic growth provided little support to the pound.

The Office for National Statistics said Britain’s economy grew 0.8% in January, the strongest monthly expansion since June and more than forecast by any economist in a Reuters poll, which had pointed to growth of 0.2%.

The data are not expected to change the thinking of Bank of England policymakers, with a 25 basis point rate increase “all but certain” next week, according to Scotiabank analysts, although they add that the BoE may decide to keep rates unchanged given Ukraine war risks.

“A cautious statement would further drag on the GBP for possibly an eventual test of sub-1.30 levels in the days following the decision, particularly as the Fed is expected to deliver a hawkish decision on Wednesday,” Scotiabank said.

“The broad risk tone regarding the war in Ukraine remains the main weight on the GBP,” Scotia added.

Russian President Vladimir Putin said on Friday that there are “certain positive shifts” in negotiations with Ukraine, which had provided support for the pound against the dollar, although most of the gains were short-lived.

“While the dollar may see a dip if there are significant steps toward peace in the coming weeks, the U.S. is relatively isolated from the direct impacts of the conflict in Ukraine, allowing the buck to benefit from both its safe haven status if the conflict extends AND the potential for more aggressive interest rate increases from the Fed as a result of persistently high inflation even when the bombs stop flying,” said Matt Weller, global head of research at City Index.

The pound rose as high as $1.3124 against the dollar before paring gains to trade flat at $1.3082. Earlier, the pound had hit a 16-month low at $1.3052.

Against the euro, sterling was up 0.2% at 83.80 pence, after touching a one-month low against the single currency in the previous day.

Meanwhile, a quarterly survey by the Bank of England showed that the British public’s expectations for the rate of inflation in a year’s time rose to the highest since 2008.

Sterling flat versus dollar near 16-month low

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