LONDON, March 16 (Reuters) - The pound rose for the first time in a week on Monday, but uncertainty over the longer-term impact on global growth and inflation from war in the Middle East kept it near
Pound Edges Up as Middle East Uncertainty and BoE Policy Decision Loom
Market Reactions and Economic Outlook
LONDON, March 16 (Reuters) - The pound rose for the first time in a week on Monday, but uncertainty over the longer-term impact on global growth and inflation from war in the Middle East kept it near three-month lows as investors favoured the U.S. dollar as a safe haven.
Bank of England Policy Decision
The Bank of England delivers its decision on monetary policy on Thursday and is widely expected to keep interest rates unchanged at 3.75%.
Market Expectations for Interest Rates
Markets are close to pricing in one rate hike by the end of the year and investors want to know how closely this aligns with the views of Governor Andrew Bailey and other BoE policymakers.
Pre-War Rate Cut Assumptions
Prior to the outbreak of the war, the markets had priced in two rate cuts.
Sterling Performance Against Other Currencies
STERLING FARES BETTER THAN SOME CURRENCIES
Sterling was last up 0.2% on the day at $1.3248, narrowly above Friday's trough at $1.3222, the lowest since early December. The pound was steady against the euro at 86.37 pence.
Safe Haven Flows and Comparative Losses
Since the start of the war on Iran, the dollar has been investors' haven of choice, even more than gold, government bonds and other defensive currencies such as the Swiss franc.
Sterling has fared slightly better than the Japanese yen or the euro, which have lost 2% and 3% in value, respectively, in the last three weeks, compared with the pound's 1.7% loss.
Factors Supporting Sterling
This is in part because of the UK's slightly lower reliance on energy imports than that of the euro zone, or Japan, and also Britain's higher borrowing rates.
UK Economic Data and Future Outlook
UK jobs data later this week could help to shape expectations for the longer-term outlook for BoE policy. Employment is softening and wage growth, which has proven particularly resilient, has also started to show signs of abating.
Expert Commentary
“A weaker job market, combined with persistent inflation, has contributed to sluggish economic growth. With oil prices rising and markets now expecting fewer interest rate cuts globally, the pound could face additional pressure if labour market conditions continue to deteriorate," Laurence Booth, global head of capital markets at CMC Markets, said in a note.
(Reporting by Amanda Cooper; Editing by Barbara Lewis)
