|27 January, 2020

Sterling steadies ahead of knife-edge BoE rate decision

Against the euro, sterling hovered at 84.38 pence -- a touch softer on the day

UK pound coins plunge into water in this illustration picture, October 26, 2017.

UK pound coins plunge into water in this illustration picture, October 26, 2017.

REUTERS/Dado Ruvic

LONDON  - Britain's pound was broadly steady on Monday ahead of a key Bank of England interest-rate decision later this week that many analysts see as too close to call.

While weak economic data and dovish comments from BoE policymakers have fuelled speculation that the central bank could cut rates as its Jan. 30 policy meeting, upbeat economic numbers in recent days have cast doubt on that view.

For instance, Friday's early readings of the IHS Markit/CIPS UK Purchasing Managers' Index (PMI) showed Britain's vast services sector returned to growth in January for the first time since August, while a downturn in manufacturing eased.

In early Monday trade, sterling was steady at $1.3077, holding below a more than two-week high touched briefly on Friday at $1.3180.

Against the euro, sterling hovered at 84.38 pence -- a touch softer on the day EURGBP=D3 .

"This (BoE) meeting follows a run of fairly weak economic data over the last few weeks but with last week’s strong employment data and better than expected flash PMIs confusing the picture," said Deutsche Bank strategist Jim Reid.

"Our economists have expected a cut for a good couple of months now but markets are closer to 50:50."

Analysts noted that market positioning data released on Friday by the U.S. Commodity Futures Trading Commission suggests that while speculators have slightly cut their net long sterling positions, they still maintain an overall long position on the pound.

Those bets on further gains in the British currency could be vulnerable as Thursday's BoE meeting draws nearer, putting downward pressure on the pound, they said.

Elsewhere, the BBC reported Irish Prime Minister Leo Varadkar as saying the European Union will have the upper hand in post-Brexit trade talks with Britain and questioned Prime Minister Boris Johnson's timetable of striking a deal by the end of the year.

Britain will formally leave the European Union on Friday.

(Reporting by Dhara Ranasinghe, Editing by William Maclean) ((Dhara.Ranasinghe@thomsonreuters.com; +442075422684;))

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