8 February 2007, 14:42  Sterling range-bound

Sterling was locked in range-bound trading ahead of the Bank of England's interest rate decision at noon but could break through historic highs if the central bank delivers a surprise hike. For dealers willing to stick their necks out, there may be good gains to be had. Gavin Friend, Forex strategist at Commerzbank, said: "If we see another rate hike then sterling will return up to recent highs and maybe even go above them." Robert Goldsmith at HBOS concurred. He said if there was a surprise rate move sterling "would see some big figures." However, analysts are expecting the BoE to keep rates at 5.25 pct, which will result in a slight fall for the pound as discounts already priced in from the risk of a hike are traded out. "There's been a small amount of discounting as the risk of a surprise rate movement increased," said Goldsmith at HBOS. "But if rates are held we expect to see a short-lived fall in the pound, though it will quickly recover," he added. Of 35 economists polled by AFX News, 34 expect the Monetary Policy Committee to leave the key repo rate unchanged at the five-and-a-half year high of 5.25 pct set in January. There has been little change in the pound this morning. Goldsmith described the pound as "holding its own" in the early morning trades. Sterling was trading around 1.968 usd while the euro was at around 0.66 stg. Key to minority predictions of a second rate hike in a row is the fact that rate setters will have to hand January inflation figures, in a repeat of the scenario last month. Inflation figures for December, where the key CPI annual rate showed a jump to 3.0 pct, was a major factor in the central bank's surprise decision to raise interest rates in January. There is some speculation that a further pick-up in inflation figures for January may prompt a follow up rate hike today.

© 1999-2024 Forex EuroClub
All rights reserved