Sterling pinned at one-month lows before central bank meeting

© Reuters. FILE PHOTO: Pound Sterling notes and change are seen inside a cash resgister in a coffee shop in Manchester, Britain, Septem,ber 21, 2018. REUTERS/Phil Noble/File Photo

By Anushka Trivedi

(Reuters) – Sterling held near four-week lows on Tuesday as investors evaluated the direction the Bank of England would take at an upcoming policy meeting, while broader risk sentiment remained under pressure due to Chinese property company Evergrande’s debt troubles.

In early London trading, the pound gained 0.2% to $1.3687, edging up marginally from previous day’s low of $1.364 – its weakest level since Aug. 23. Some analysts cited the next support for the pound at its August low of $1.3602.

In an important week for monetary policy, the Federal Reserve and BoE are among a dozen central banks hosting their meetings, which kept major currencies confined to their well-trodden ranges.

The overall market mood is cautious about potential economic repercussions from Evergrande’s debt problems.

The pound was caught up in the sell-off across financial markets on Monday, while weak data tempering hawkish BoE expectations ahead of Thursday’s monetary policy meeting had added to the currency’s woes.

Though no rate hikes are expected from the BoE until early 2022, investors had begun pricing in an end to the bank’s pandemic-era stimulus and sought commentary on policy tightening.

“We believe that what’s currently priced in for the BoE is in general too optimistic,” said Esther Reichelt, foreign exchange and emerging markets analyst at Commerzbank (DE:).

Sterling will not appreciate by much, she added, saying that the first rate hike in six-months “seems quite early given high uncertainties around the development of inflation and the pandemic, as well as possible Brexit fallout.”

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The central bank will have to take into account the recent batch of economic data that showed retail sales eased for the fourth straight month in August, while inflation jumped, with rising gas prices expected to add to price pressures.

Against the euro, the British currency was slightly stronger at 85.66 pence, but still hovered around a two-week low.

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