‘Sterling at juncture’ as US Federal Reserve meets

Inflation at zero, rather than a forecast -0.1%, was not enough to shift sterling out of tight ranges on the run in to tonight’s US Federal Reserve meeting, widely expected to raise interest rates for the first time in almost a decade.

‘Sterling at juncture’ as US Federal Reserve meets

The pound wavered marginally after the November data showed consumer prices stood flat on the month.

It was up 0.15% at $1.5165, while dipping around the same margin to 72.725 pence per euro.

A speech by Bank of England deputy governor Minouche Shafik on Monday underlined for many in the market that the BoE will be in no great hurry to raise interest rates next year, barring a big surprise on data in the first quarter.

Thereafter, many analysts say policymakers’ hands may be tied by downward pressure on the pound due to the debate, to run through next year, on whether Britain should leave the EU.

“The problem for [the BoE’s] hawks is that inflation needs to show more life and, before late first quarter, hope for that looks slim,” said Todd Elmer, a strategist with Citi.

“The pound is sidelined for now.”

Dealers said the market looked to be positioned all but entirely neutrally going into the Fed decision this evening.

Most are now betting on a “doveish” hike, a rise in interest rates followed by signs from Fed chief Janet Yellen that the bank may stay on hold for some time before moving again, if at all.

“Sterling is at a juncture,” said Tobias Davis, currency hedging manager with Western Union in London.

“It all hinges on the tone of Yellen’s post announcement press conference. If she almost starts apologising for hiking and talks down the dollar, then we see $1.53.

"If she discusses a gradual, feasible, trajectory for 2016 then we can get to 1.50.”

The pound had hit a seven-week low against the euro on Monday.

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