Sterling waiting for inflation data, rebounds vs Swiss franc

LONDON (Reuters) – The pound sat within its recent ranges against the euro and dollar on Monday, and rebounded against the Swiss franc, at the start of a week with always-important inflation data that will further guide the Bank of England’s interest rate path.

Sterling was up 0.07% against the dollar at $1.2154, keeping a little off early October’s six-month low of 1.20535. It was a touch softer against the euro, which was up 0.1% at 86.71 pence.

Swings have been more dramatic against the Swiss franc, a traditional global safe haven. The British currency rose 0.23% against the franc on Monday having tumbled nearly 1% on Friday, when investors moved to the safe haven for fear of further developments in the war in the Middle East over the weekend when markets were closed.

The main macro-economic release this week is Britain’s consumer price index (CPI) due Wednesday, as well as employment data the day before.

Investors will be watching the numbers closely as sterling was supported in the first half of this year by sticky inflation driving expectations that the Bank of England (BoE) would keep raising rates for longer than other central banks.

The pound has weakened in recent months as markets pared back these expectations, though market pricing still indicates about a 50% chance of one further 25 basis point rate hike this cycle.

The CPI release will be “important for the November BoE meeting, although we expect it to remain soft enough that no further tightening will be required,” said Paul Robson, NatWest markets head of G10 FX strategy, in a note to clients.

“Expectations of high, for longer UK rates is supportive of sterling. But we continue to be on guard for a shift from rates to relative growth as a driver,” Robson added.

Around the world markets are exceptionally data-dependent, reacting sharply to economic or inflation numbers that do not come in line with expectations.

However, BoE Chief Economist Huw Pill told an event on Monday he thought markets had become a bit too short term in looking at data impact on BoE rates.

Pill also said that the BoE must not consider the fight against high inflation to be over simply because the pace of price growth has slowed.

“We still have some work to do in order to get back to 2% (the BoE’s target). And we probably have some work to do to ensure that when we get it back to 2%, we do so in a way that is sustainable.”

(Reporting by Alun John; Editing by Mark Potter)