The British pound sank to a 7 month low on Thursday before a Bank of England monetary policy meeting where officials could indicate if interest rates will be raised this year despite a weak spell for the economy, Reuters reports.
No economists polled by Reuters expect the BoE to raise rates and some are getting cold feet about their forecasts for a rate rise in August, which would be only the second increase by the central bank since the 2008 financial crisis.
Market expectations are for a less than 40 percent likelihood of the Bank of England’s Monetary Policy Committee (MPC) raising interest rates by August, with about an 80 percent chance of one more rate hike by the end of 2018.
Sterling on Thursday fell to $1.3125, its lowest since mid-November 2017.
Against the euro, the British currency traded flat at 87.92 pence reflecting reluctance among investors to take out big positions before the BoE meeting.
Some analysts said that recent tentative signs of a recovery in the economy could prompt the central bank to offer stronger guidance on rates which would lift the pound.
Other market watchers however said the BoE would be unlikely take a clear stance on interest rates because of lingering uncertainty over the economy and Britain’s impending exit from the European Union.
“With Brexit politics and the short-term economic backdrop both highly fragile, we think the BoE will feel little need to send any pre-committing rate hike signal this month,” analysts at ING said in a note.
Sterling rebounded modestly against the dollar and the euro on Wednesday after Prime Minister Theresa May won a crucial Brexit vote in parliament, averting a rebellion that could have undermined her authority.
May needed the lower House of Commons to pass her EU withdrawal bill – legislation that will prepare Britain for a divorce next March that will end its more than four-decade-old trading and political partnership with the rest of Europe.
Traders are divided as to whether May’s victory will boost her chances of securing a more favourable Brexit deal with the European Union given that many more months of negotiations remain.