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Sterling flounders at 1-month lows before cbank meeting; green bond sale helps

09/21/2021 | 09:41am EDT
FILE PHOTO: Pound Sterling notes and change are seen inside a cash resgister in a coffee shop in Manchester

(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 late London trading, the pound gave up all its earlier gains to trade flat on the day at $1.3664, slightly higher from Monday'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.

The pound also received some support from a record $137 billion demand for its first "green" government bond amounting to $10 billion.

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.

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."

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 85.90 pence, but still hovered around a two-week low.

(Reporting by Anushka Trivedi in Bengaluru; Editing by Saikat Chatterjee and Alistair Bell)

By Anushka Trivedi

© Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / BRITISH POUND (AUD/GBP) 0.35% 0.54402 Delayed Quote.-4.01%
AUSTRALIAN DOLLAR / EURO (AUD/EUR) 0.21% 0.64366 Delayed Quote.1.34%
BELIEVE 0.00% 17.43 Real-time Quote.0.00%
BRITISH POUND / EURO (GBP/EUR) -0.20% 1.18319 Delayed Quote.5.69%
CANADIAN DOLLAR / BRITISH POUND (CAD/GBP) 0.38% 0.589098 Delayed Quote.2.27%
CANADIAN DOLLAR / EURO (CAD/EUR) 0.14% 0.697034 Delayed Quote.8.13%
COMMERZBANK AG -2.10% 6.232 Delayed Quote.20.91%
EURO / BRITISH POUND (EUR/GBP) 0.22% 0.8451 Delayed Quote.-5.36%
INDIAN RUPEE / BRITISH POUND (INR/GBP) 0.68% 0.009716 Delayed Quote.-3.27%
INDIAN RUPEE / EURO (INR/EUR) 0.38% 0.011485 Delayed Quote.2.19%
US DOLLAR / BRITISH POUND (USD/GBP) 0.28% 0.726966 Delayed Quote.-0.45%
US DOLLAR / EURO (USD/EUR) 0.04% 0.860215 Delayed Quote.5.17%
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