In Europe Sterling inches higher, eyes on BoE economist chat

British inflation, expected to come in at zero on Tuesday, is the central argument against a move higher in UK rates

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Bank of England play

Bank of England

(theguardian)
Pounds Sterling play

Pounds Sterling

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Sterling edged towards a three-week high against the dollar on Monday before what promises to be the most closely watched U.S. Federal Reserve meeting in years.

Whatever the Fed decides on Thursday - the first meeting in recent memory where an interest rate rise has been a live issue - will also have implications for whether the Bank of England raises rates next year.

In that context, traders were awaiting a Twitter chat with the Bank of England's chief economist, Andy Haldane, and monetary policy committee members due at 1330 GMT.

"Haldane will certainly be important and interesting," said Alvin Tan, a strategist with Societe Generale in London. "There's quite a lot of UK data coming out this week, but it is still all about the Fed. The dollar is going to be moved by that and that should be the dominant factor for cable."

He said sterling should still be supported against the euro by expectations the BoE will raise rates before the European Central Bank.

British inflation, expected to come in at zero on Tuesday, is the central argument against a move higher in UK rates, on which markets have blown hot and cold for the past two years. Countering that are jobs and wages numbers, due a day later, which have been more positive.

READ: The US market is picking up despite steady slump in China

The pound gained just over 0.1 percent against both the euro and the dollar, to $1.5455 and 73.34 pence per euro in morning trade in London to trade.

The election of Jeremy Corbyn to lead the main opposition Labour Party, as expected, had no discernible effect. Traders and strategists have argued in recent weeks that his leadership is likely to increase the risk of Britain leaving the European Union in a referendum by the end of 2017, potentially weighing on the pound.

Barclays argued that the heart of the BoE's dilemma on interest rates now is the relative strength of the pound, which last month reached its strongest level since 2008 against a basket of major currencies.

"We continue to think the BoE remains uncomfortable with persistent pound strength and remain bearish on sterling," Barclays' analysts said in a morning note.

"If the exchange rate does not continue to adjust lower, the market may price even further delays to BoE tightening."

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