Market

Pound hovers at highest level against euro since April ahead of BoE meeting

Sterling held at around its strongest level against the euro since April as traders waited for clues on whether the Bank of England will follow the US Federal Reserve to set out a path for the first post-pandemic interest rate rise.

The UK currency, which traded at €1.17 ahead of the BoE’s monetary policy meeting later on Thursday, has gained more than 6 per cent against its eurozone counterpart in six months as economic growth rebounded and inflation topped the central bank’s 2 per cent target.

Sterling has also gained more than 1 per cent against the dollar in the past five days, trading at $1.396 on Thursday morning.

The US currency bounced last week in the wake of Fed officials bringing forward projections for their first rate rise following the Covid-19 crisis by a year to 2023. The dollar index, which measures the greenback against major currencies, has pulled back 0.5 per cent this week following dovish assurances from Fed chair Jay Powell.

“Official UK data indicate that the economy is on track to record strong growth over the summer months,” said Marchel Alexandrovich, European economist at Jefferies.

Strategists at Bank of America said they expected no change to the BoE’s plan to buy £150bn of UK government bonds this year, or any increase in its main interest rate from the current record low 0.1 per cent, but that Thursday’s post-meeting statement may contain more “hawkish rhetoric.”

Chris Scicluna, economist at Daiwa, said he expected that rising cases of the Delta variant of coronavirus would hold back the BoE’s rate setters from making any moves towards a rate rise.

“The recent pick-up in new coronavirus cases, to more than four times the rate at the time of the MPC’s May meeting, and delay to further economic reopening provides a reminder of the downside risks,” he said.

The yield on the 10-year UK government bond, which moves inversely to its price, added 0.01 percentage point to 0.791 per cent. This benchmark gilt yield, which influences borrowing costs for UK businesses and households, has also climbed from 0.18 per cent at the start of the year.

Elsewhere in markets, banks and retailers led the Stoxx Europe 600 share index 0.4 per cent higher ahead of the release of the Ifo Institute’s business climate index, which is expected to show rising optimism among company bosses in the eurozone economic powerhouse.

The UK’s FTSE 100 index ticked 0.1 per cent higher.

The yield on the 10-year US Treasury note was 0.01 percentage point higher at 1.5 per cent.

Futures markets signalled the S&P 500 share index would gain 0.3 per cent at the start of New York trading.

Brent crude, the international oil benchmark, added 0.5 per cent to 75.54 a barrel.

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