Pound back to 2.5-month highs on rate call

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British five pound banknotes are seen in this illustration taken November 14, 2017. REUTERS/Benoit Tessier/Illustration/File Photo

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LONDON, Jan 17 (Reuters) – The pound rose slightly on Monday, approaching a 2.5-month high, as investors stepped up bets that the Bank of England will raise interest rates as soon as possible. next month.

Recent data has raised expectations that the UK economy is rebounding strongly from the pandemic.

Friday’s GDP data showed the economy is bigger than it was before the first COVID-19 lockdown, while Tuesday’s jobs data is expected to be robust. Read more

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Money markets are fully pricing in a rate hike by next month and a full one percentage point interest rate hike by the end of 2022.

Against the US dollar, the pound edged up 0.1% to $1.3689. It hit a late October high of $1.3749 last week. It was broadly stable against the euro at 83.51 cents.

The pound has rebounded nearly 4% from December lows as broader currency markets have been boosted by a more optimistic global growth outlook, causing hedge fund trading positions in the pound to swing.

The Fed’s recent hawkish stance also boosted the pound’s appeal as investors bet it would give the Bank of England greater confidence to raise interest rates and tighten policy.

“The Fed’s shift toward more aggressive policy action will likely lead the market to expect similar moves from central banks like the BoE that were already taking steps in this direction,” Goldman Sachs strategists said. .

“In this context, it should also be noted that the Fed’s apparent preference for earlier action on the balance sheet makes the BoE’s own liquidation plans less idiosyncratic, which we believe could have dampened the response of the sterling to political action,” they said, lowering their forecast euro/pound to 83 pence over the next three months from 86 pence earlier.

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Reporting by Saikat Chatterjee, editing by Ed Osmond

Our standards: The Thomson Reuters Trust Principles.

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