March 26, 2018 / 8:29 AM / 4 months ago

Sterling climbs as markets bet on May rate rise

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

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

LONDON, March 26 (Reuters) - The British pound rose against the dollar on Monday as investors became more convinced that the Bank of England would raise interest rates in May.

The pound rallied last week after Britain secured itself a Brexit transition deal with the European Union, official data showed British workers’ wages growing at their fastest rate in nearly 2-1/2 years and the BoE confirmed its hawkish tilt.

On Friday, monetary policy committee member Gertjan Vlieghe indicated that the bank base rate would need to rise one or two times each year in the current tightening cycle.

“The pound continues to trade on a firmer footing following on from last week’s favourable developments,” Lee Hardman, an FX strategist at MUFG said.

However, Hardman said the UK rate market had already priced in the May hike as well as one more later this year and “there is now a higher hurdle in the near-term for further pound gains on the back of changes in BoE policy expectations alone”.

The pound climbed 0.4 percent to $1.4188 after earlier rising to $1.4195.

The pound last week hit $1.4220, its highest level since it briefly soared above $1.43 in January to a post-Brexit vote high.

Against the euro, sterling added 0.2 percent to 87.280 pence per euro.

ING analysts said in a note that if trade war tensions do not escalate this week and equity markets stabilise, two factors which would be expected to support buying of currencies like the pound, sterling could push higher towards between $1.4250 and $1.43. (Reporting by Tommy Wilkes Editing by Gareth Jones)

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