By Stefano Rebaudo
Feb 7 (Reuters) - Sterling hit a fresh one-month low
against the U.S. dollar on Tuesday as investors expect the Bank
of England (BoE) to end, and possibly reverse, its monetary
tightening cycle soon while the U.S. Federal Reserve might keep
rates higher for longer.
High interest rates usually support currencies.
Investors await more comment from the BoE and provisional
data for British fourth-quarter gross domestic product (GDP) on
Friday, which might provide further clues about the central
bank's next moves.
The central bank's chief economist, Huw Pill, said on Monday
that the bank was prepared to do more to get inflation to
target.
Meanwhile, fading risk appetite due to expectations for more
monetary tightening from the Fed and the European Central Bank,
as well as geopolitical tensions, might weigh on the pound,
which investors see as a risky currency.
The U.S. military searched for debris from a suspected
Chinese spy balloon shot down by a U.S. fighter jet, and the
White House said it would keep a calm approach to relations with
Beijing.
Sterling was flat at $1.2018 after hitting its lowest since
January 6 at $1.1986. The dollar eased after its rally the previous day but still
hovered near a one-month peak.
The BoE signalled the tide was turning in its battle against
high inflation after it raised interest rates last Thursday.
"We think investors may be over-reacting to this 'dovish
pivot' since the Bank of England views have proven quite erratic
over this tightening cycle," said Matthew Ryan, head of market
strategy at global financial services firm Ebury.
"At any rate, incoming inflation data will be even more
important than before and will dictate whether the BoE intends
to continue raising rates after the next meeting in March," Ryan
added.
British consumer price numbers are due next week.
The euro fell 0.1% against the pound to 89.15 pence. "While the UK may have just about avoided a technical
recession in Q4-22, it is still very much in the middle of a
downturn," said Sanjay Raja, senior economist at Deutsche Bank,
adding that he expected Q4-2022 GDP to flatline.
"A 2023 technical recession is very likely, with GDP
contracting in both Q1 and Q2," he added.
Following the BoE's February decision, Deutsche Bank lowered
its terminal rate expectation from 4.5% to 4.25%, but sees
"risks rising of further hikes" in the second half of this year.
(Reporting by Stefano Rebaudo, editing by Robert Birsel)
Messaging: stefano.rebaudo.thomsonreuters.com@reuters.net))
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.