Azernews.Az

By Bloomberg

The pound was on track for its first week of gains since mid-May against the dollar, with the U.S. currency weighed down by renewed investor uncertainty on when the Federal Reserve would tighten monetary policy.

Sterling has strengthened against most of its Group-of-10 currency counterparts in a week of fluctuations in euro-area bond markets, and while Greece and its creditors tried to strike a deal to avoid default. U.K. economic reports were mixed, provoking price swings in the pound that first drove it to its weakest level since early May against the euro before a recovery that notched a fourth day of gains on Friday.

“Generally within the G-10 universe, sterling is one of the better currencies,” said Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt. “The reason sterling is holding up against the dollar this week is more a dollar story rather than U.K.-specific factors. There is general dollar weakness because there is so much uncertainty on the first Fed rate hike.”

Sterling was set for a 1.4 percent gain this week to $1.5484 at 12:52 p.m. London time, its first weekly gain since the period ended May 15. The pound has strengthened 0.6 percent this week, to 72.32 pence per euro, recovering from the 73.89 pence touched on June 9, its weakest since May 8.

Hawkish BOE

Bank of England policy maker Ian McCafferty said on Friday the time to begin policy tightening is approaching as the U.K. economy is “starting to return to more normal conditions.”

“The BOE will turn increasingly hawkish,” said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA in London. “If the Fed were to hike rates, the BOE wouldn’t be that far behind them,” he said, adding that he forecasts the pound to end the year at $1.59.

Markets are pricing in the first interest-rate increase by the BOE in July 2016, according to Sonia forward contracts. The European Central Bank has reiterated that it will maintain its expansionary monetary policy and this is a “big plus for the pound,” against the common currency, Commerzbank’s Nguyen said.

Benchmark 10-year U.K. government-bond yields fell two basis points, or 0.02 percentage point, to 2.02 percent. The 5 percent security due in March 2025 climbed 0.225, or 2.25 pounds per 1,000-pound face amount, to 126.165.