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Bolstered by BoE rate talk, pound keeps up pressure on dollar, euro

Ritvik Carvalho
·2 min read

* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv

By Ritvik Carvalho

LONDON, Jan 14 (Reuters) - Sterling rose on Thursday as pushed-back expectations for negative interest rates from the Bank of England and hopes for a quicker economic recovery in Britain given its lead in vaccinations across Europe buoyed the currency.

The pound has gained against the dollar and euro, 1% and 1.5% respectively this week after Bank of England Governor Andrew Bailey threw a dampener on market expectations for sub-zero rates in Britain.

Market pricing for negative interest rates from the central bank has been pushed back by nearly a month, with negative rates now expected in June 2021, compared with May 2021 earlier.

By 0904 GMT, sterling was 0.1% higher to the dollar at $1.3657, not far off $1.3701 hit earlier this week.

ING said the re-pricing of Bank of England negative rates expectations has fuelled euro-sterling downside momentum and the pair may re-test the 89-pence support today.

Sterling was 0.2% higher to the euro at 89.025 pence, off its highest levels against the single currency - 88.84 pence - since Dec. 24.

"We think there is a good case for a stronger pound with the UK leading the European vaccination race, our forecasts that the Bank of England will not join the negative interest rate club and when the near-term adjustment problems at the borders to the new EU-UK relationship are over," said Kristoffer Kjær Lomholt, chief analyst, FX and rates strategy at Danske Bank.

With the uncertainty around a Brexit deal now largely gone, analysts are increasingly focused on Britain's economy and its prospects.

Cases of COVID-19 disease have continued to surge in Britain, forcing renewed lockdowns.

A boom in Britain's housing market has started to fade, curtailed by the new lockdowns and the coming expiry of a temporary tax cut for buyers, a survey showed on Thursday.

The Royal Institution of Chartered Surveyors' monthly gauge of new buyer enquiries fell in December to a seven-month low of +15% from +26% in November.

(Reporting by Ritvik Carvalho; editing by Larry King)