Sterling rises mirroring stocks, eyes on BoE speeches

Sterling edged up on Wednesday mirroring the equity market, which rebounded as investors waited to see how Russian President Vladimir Putin will respond to Western sanctions over the standoff with Ukraine.

After falling to a seven-month low in the previous day, the pan European STOXX 600 index surged more than 1% on Wednesday as investors took stock of Western sanctions against Moscow for ordering troops into separatist regions of eastern Ukraine. The sanctions raised some hopes that a war on Europe’s eastern flank can be avoided.

Versus the dollar, sterling rose 0.1% to $1.3606 at 0930 GMT, after touching a six-day low in the previous day.

It was flat against the euro at 83.41 pence, after staging its worst day against the single currency in one week on Tuesday, falling to 83.82.

“GBP is being buoyed by a more materials-weighted local equity benchmark and the UK government’s more aggressive re-opening schedule,” Chris Turner, Global Head of Markets at ING said.

British Prime Minister Boris on Monday said he would end all coronavirus restrictions in England including mandatory self-isolation for people with COVID-19.

Investors are also waiting for a Bank of England (BoE) Governor Andrew Bailey, Deputy Governor Ben Broadbent and other two BoE members speeches to parliament later in the morning.

“We doubt they will want to push back (yet) on aggressive pricing of the BoE cycle, which is providing support to GBP and helping to insulate against higher energy prices,” ING said.

On Tuesday, Deputy Governor Dave Ramsden signalled more monetary tightening, but said he now sees a “modest” rate hike over the coming months.

The BoE raised interest rates to 0.5% this month from 0.25%, but Ramsden was part of a minority who voted for a bigger increase to 0.75%, which would have been the first half-point rise since BoE independence in 1997.

Investors are fully pricing in another 0.25% rate hike at the BoE’s next scheduled meeting on March 17. BOEWATCH