FX round-up: Sterling mixed as speculation of BoE rate cut grows

Sterling was trading mixed this evening, having surrendered early session gains against the dollar as traders speculated on whether Bank of England will move to cut rates next week and, if so, by how much.

Recent hints by BoE governor Mark Carney that rates might be cut this summer, along with trading in overnight swaps, have led to chat that the central bank might loosen on Thursday next week.

Against this backcloth, the US Federal Open Market Committee's minutes last night suggested it was unlikely to hike rates any time soon.

By about 17:16 BST, sterling had lost earlier gains on the dollar to be down 0.12% at $1.2916. It was up 0.18% to €1.1671. The British unit also rose on the loonie and aussie, but fell versus the kiwi and rand.

The dollar-spot index was up 0.18% to $96.229.

"We have pencilled in a 0.25% rate cut in July, though we would not rule out a bigger move," said Capital Economics, adding such a loosening might be chased by an expansion of quantitative easing.

"After all, other central banks' experience may have re-assured the Monetary Policy Committee that rates can fall to zero or below without causing substantial damage to the banking sector."

Others pundits, such as Sandy Chen of Cenkos Securities, were cautious, especially when it came to the potential for easing the key rate by 0.5%.

"Please don't," pleaded Chen. "A 50 basis point cut won't boost borrowing, but it will almost certainly lead to another drop in cable," he said, suggesting BoE holding pat instead.

"If a floor in the GBP exchange rate could be established, this crucial bit of relative certainty could begin to calm down the rest of the markets."

Other market watchers characterised sterling's turns today as a breather, doubting the cable would travel for long on a straight line.

The market generally liked forecast-beating UK industrial and manufacturing data for May this morning, and was not flustered by European Central Bank expressing concerns about Brexit's economic fallout for the bloc.

Michael Hewson, chief market analyst at CMC Markets UK, observed sterling had tried to push through $1.30, but on a trade-weighted basis remained above lows seen in 1995 and end-2208.

Meantime, the greenback turned in a mostly positive performance, rising 0.34% to €0.9040 and also gaining traction against commodity-backed issues. It, like sterling, fell firmly on the safe-haven appeal of the yen.

All eyes are now on Friday's US non-farm payrolls data, following the shock it caused last time around.