Pound sterling makes gains ahead of first interest rate decision since Brexit vote

The rally came even amid expectations that the Bank of England will cut its benchmark rate for the first time since 2009 to support the economy from the Brexit fallout

The pound has moved upwards but has a long way to go to regain losses incurred after EU referendum result (Reuters)

The pound advanced as traders awaited the Bank of England’s first rate decision since the UK voted to leave the European Union on June 23.

Sterling strengthened against all but two of its 16 major peers, approaching its highest level in more than a week versus the dollar.

The currency’s rally came even amid rising speculation that the Bank of England will cut its benchmark rate for the first time since 2009 to support the UK economy from the fallout of Brexit.

Futures pricing shows the chance of a rate cut at this meeting has climbed to 83 per cent, compared with 11 per cent on the day of the EU referendum.

The pound rose 0.6 per cent to $1.3223 as of 8:19 am, having touched $1.3338 on Wednesday, the highest since July 4. Sterling strengthened 0.5 per cent to 83.93 pence per euro.

“Currency investors see a rate cut today as a done deal,” said Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole’s corporate and investment-banking unit in London, wrote in a client note.

“I think the BOE will struggle to exceed the already dovish market expectations and this will help the pound to consolidate in the aftermath of the meeting.”

“This is why people are buying at present, they are trying to anticipate a squeeze higher after the event,” Marinov said.

The UK currency climbed for three days up to Tuesday against the dollar as it became clear that Theresa May would replace David Cameron as UK’s prime minister, ending a period of political instability that has lasted since Britain voted to leave the world’s biggest trading bloc.

The former Home Secretary took office Wednesday evening.

Still, the pound is about 11 per cent lower versus the US currency since the U.K. opted for Brexit.

Sterling tumbled to the lowest level against the greenback since 1985 last week, after having its worst day on record on June 24, when the result of the referendum became clear.

© 2016 Bloomberg