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‘Hike would be huge surprise’: Pound holds ground ahead of BoE rate call

It’s Super Thursday for the Bank of England, and ahead of its rate call and the simultaneous publication of the quarterly inflation report, the pound is holding its ground.

The currency is up 0.1 per cent at $1.3232, leaving it within sight of its 11-month dollar high of $1.3250 touched during the previous session. Over 2017, the pound is up by over 7 per cent against the dollar, as fading expectations for meaningful fiscal stimulus and tax reform from the Trump administration have weighed on the world’s reserve currency.

Against the euro, the pound is down 0.2 per cent at £0.8948. It is over 5 per cent weaker against the shared currency over the year to date, as a deeper and broader economic rebound and expectations that the European Central Bank can move toward tighter monetary policy have lifted the euro.

Sterling’s immediate fortunes are likely to depend on what happens at midday.

Jamie Searle at Citi says:

A rate hike today from the Bank of England would be a huge surprise, which in itself makes it less likely as it would risk delivering an abrupt tightening in financial conditions to an already fragile economy.

The immediate market reaction will probably be driven by the vote split — a 6-2 vote [to leave rates on hold] is the Citi base case, but a repeat of the 5-3 from June is a possible. We still believe a hike in 2017 is unlikely.

The yield on the UK’s benchmark government debt, which falls when its price rises is down 1 basis point at 1.231 per cent. The more policy-sensitive 2-year gilt yield is down 2bp at 0.267 per cent.

European equities are slipping back, with financial stocks coming off a strong run, following a pattern set in Asian trade.

The Euro Stoxx 600 banking index is down 0.5 per cent, while the region-wide Euro Stoxx 600 is down 0.2 per cent. In London, the FTSE 100 is 0.1 per cent weaker and in Frankfurt the Xetra Dax 30 is down 0.4 per cent.

Equities were broadly lower in Asia amid relative softness for most regional currencies against the dollar, with financial stocks slipping back. In Hong Kong the Hang Seng is down 0.2 per cent with financials under pressure as HSBC hands back some of its recent gains.

Australia’s S&P/ASX 200 index is off 0.2 per cent as the materials segment dropped 0.6 per cent. Tokyo’s Topix is flat.

Crude oil prices are pulling back from gains made during the previous session. Brent crude, the international benchmark, is down 0.6 per cent at $52.09 a barrel. US marker West Texas Intermediate is down 0.5 per cent at $49.33.