Sterling slipped against the dollar on Friday, pegged back by comments from a senior Bank of England policymaker who said an interest rate hike by the Federal Reserve would not automatically lead to a response in Britain. A day after BoE chief economist Andy Haldane said Britain does not need a rate hike in the near future because wage growth has fizzled and the outlook for the global economy is uncertain, he told BBC radio that while monetary policy in other countries mattered, it would not prompt an automatic response by the BoE.
"Haldane suggested that a rate hike is a long way off due to inflation undershooting. So we are a bit bearish on sterling especially against the dollar," said a trader. Sterling was down 0.1 percent at $1.5218, having risen to a day's high of $1.5270 after US retail sales and producer prices came below expectations. But the soft data did little to alter chances of a rate hike by the Fed next month. Markets are pricing in a 70 percent chance of a lift-off.
Sterling, though, rose against the euro, trading 0.7 percent higher at 70.50 pence, not far from a three-month high of 70.41 pence hit on Thursday. The pound has lost ground against the dollar in recent days after the BoE cooled expectations of a rate hike in the near term, while a blockbuster US jobs report kept the chances of a hike by the Federal Reserve very much alive. Along with uncertainty over when the BoE would raise rates, sentiment towards the pound has been weighed down over a referendum on Britain's membership of the European Union.
The cost of hedging against sharp price swings in sterling's exchange rate surged on Thursday. A fresh opinion poll showed more than 50 percent of Britons want to leave the European Union while 47 percent would like to remain in the bloc. The opinion poll was conducted by pollster Survation on behalf of the 'out' campaign. Traders think UK inflation and retail sales data due next week are unlikely to change the outlook for monetary policy.
"Given uncertainty regarding global growth prospects, and as the BoE remains cautious regarding a stronger currency's dampening impact on price developments, we expect investors' central bank monetary policy expectations to remain strongly capped," Valentin Marinov, head of G10 FX strategy at Credit Agricole, wrote in a note. "As such we do not expect next week's CPI and retail sales releases to have any sustainable currency impact. We remain in favour of selling the currency versus both the Swiss franc and the dollar."