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LONDON, Feb 2 (Reuters) - The British pound climbed to a
1-1/2 week high on Wednesday before a Bank of England meeting on
Thursday where policymakers are widely expected to raise
interest rates.
Investors have now fully priced a 25-basis-point rise in the
BoE's main interest rate to 0.50% on Feb. 3 and economists
polled by Reuters also expect that outcome from the meeting.
In early London trading, the pound was a shade higher at
$1.3549, its highest level since Jan. 24. Against the
euro, it was broadly steady at 83.37 pence.
The Bank of England was among the first off the blocks among
its developed market peers to raise interest rates in December
and money markets now expect a total of 100 bps in rate hikes
this year.
While those punchy rate expectations are already priced into
current levels of the pound, which is up 0.6% so far this year,
analysts believe the British currency can extend gains if
policymakers strike a more hawkish tone to curb inflation.
Most economists polled by Reuters also believe the BoE will
also signal its approach to start unwinding its 895 billion
pound ($1.2 trillion) quantitative easing programme. ECILT/GB
"While the passive reduction of the balance sheet is
unlikely to cause any major disruption, an earlier signal of
active sales of the BoE’s gilt holdings may create more
volatility and could push yields higher," HSBC strategists said.
"This would also be supportive for the pound."
Currency markets ignored the latest news on the political
crisis brewing in Britain over lockdown parties at Downing
Street with a senior lawmaker saying he would submit a letter of
no confidence in Prime Minister Boris Johnson on Wednesday.
(Reporting by Saikat Chatterjee; Editing by William Maclean)
