supported before Fed, sterling retreats after BoE
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[June 18, 2014]
By Anirban Nag
LONDON (Reuters) - The
dollar held gains against the yen on Wednesday after
higher-than-expected U.S. consumer prices for May fanned
speculation that the Federal Reserve may inch closer
towards raising interest rates.
The U.S. currency also rose against the pound after the minutes from
the Bank of England's last policy meeting proved not to be as
hawkish as many were expecting.
The tone of recent comments from policymakers, including a U-turn
from Governor Mark Carney from dove to hawk on monetary policy, had
bolstered expectations that one of the committee members may have
voted for an increase earlier this month.
Against the yen, the dollar reached a one-week high of 102.31.
Sterling fell 0.2 percent to trade at $1.6935.
The U.S. consumer price index rose 0.4 percent in May, double what
economists had expected, raising the possibility that a separate
inflation gauge watched by the Federal Reserve also pushed higher in
News of the pick-up in inflation was announced as Fed policymakers
prepared to conclude a two-day meeting. The Fed is widely expected
to chop another $10 billion from its monthly bond purchases, but is
considered unlikely to make other concrete policy moves.
"We are expecting the Fed to raise their inflation forecasts, but
that is more or less expected," said Yujiro Goto, currency analyst
at Nomura, London.
"Clearly the momentum is picking up in the U.S. and we are expecting
the Fed to become more hawkish in the third quarter. Hence we are
recommending buying the dollar against low-yielding currencies like
The focus will be on Fed Chair Janet Yellen's news conference for
any clues on longer-term plans for rates. She is expected to provide
a more balanced view on the future path of interest rates, but any
hawkish hints could send Treasury yields soaring and help the
A recent Reuters poll found a majority of Wall Street's top bond
firms do not see the Fed raising rates before the second half of
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BOE VS FED
The BoE is expected to tighten policy before that. BoE chief Mark
Carney's warning last week that markets were too sanguine about the
chances of a 2014 hike had earlier this week sent the pound soaring
past $1.70 for the first time since mid-2009.
But the minutes showed members wanted to see more evidence of
economic slack being absorbed before raising rates. None voted for a
rate rise, quashing market speculation that at least two members
made have done so in the June meeting. That news sent the pound
lower against the dollar and the euro.
"Given the lack of hawkish surprises we could see some profit-taking
on long sterling positions," said Valentin Marinov, currency
strategist at Citi. "Sterling/dollar looks vulnerable ahead of the
The euro's gains against sterling saw it inch up against the dollar,
trading at $1.3567, up 0.1 percent on the day.
(Editing by Gareth Jones and Keiron Henderson)
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