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Sterling retreats from 15-month highs before BoE governor's speech
September 18, 2017 / 8:22 AM / in 3 months

Sterling retreats from 15-month highs before BoE governor's speech

* Graphic: Sterling and gilt yields bit.ly/2dgAXn1

* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

By Ritvik Carvalho

LONDON, Sept 18 (Reuters) - Sterling hit a 15-month high against the dollar on Monday before retreating a notch as investors wound back some of last week’s bets on a Bank of England rate rise ahead of a speech by the central bank’s governor Mark Carney.

The pound rocketed past $1.36 to its strongest since the Brexit vote on Friday after BoE policymaker Gertjan Vlieghe echoed the central bank’s message of the previous day that it could raise rates in “coming months”.

A more hawkish tilt among the BoE’s rate-setters has prompted analysts to revise their forecasts for the pound.

HSBC on Monday upped its year-end sterling forecast to $1.35 from $1.20 previously. It also said it expected two 25-basis-point rate increases by the end of 2018, compared with a previous forecast of none.

After briefly touching $1.3618 on Monday, sterling slipped to trade 0.3 percent lower at $1.3550.

It was 0.1 percent lower at 87.97 pence per euro.

But some strategists remained bearish on the pound.

“Any BoE-fuelled sterling rally may be on its last legs; what we have defined as a ‘withdrawal of stimulus’ hiking cycle is now priced into the currency,” ING’s Viraj Patel said.

“Anything more would be an overshoot in our view and we therefore expect Governor Carney’s speech at the IMF (International Monetary Fund) today to acutely manage market expectations.”

Carney will speak at 1500 GMT.

Brexit is also on investors’ radar ahead a speech in Florence on Friday by British prime minister Theresa May. She is likely to address Brexit negotiations that have been postponed to the week of Sept. 25.

In a letter organized by the Confederation of British Industry (CBI), business leaders from companies including BT and Centrica said they wanted a three-year Brexit transitional deal to protect jobs in Britain and Europe.

Brussels has said talks on Britain’s future trading relationship with the EU can only start after the other 27 EU governments are satisfied that “sufficient progress” has been made on the terms of the departure. Britain is due to leave the union, deal or no deal, in late March 2019.

“What’s interesting is the expectation of a rate hike is having a greater influence (on the pound) than some of the political issues that potentially could have weighed on sterling in a way that they might have done six months ago,” said Simon Derrick, head of markets strategy at Bank of New York Mellon.

“We’re still in the middle of Brexit negotiations, we’ve got the Conservative party conference coming up and we’re in a time of political uncertainty.”

Reporting by Ritvik Carvalho; Editing by Catherine Evans

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