Sterling maintains gains amid expectations government will spend more

Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company’s headquarters in Vienna, Austria, November 16, 2017. — Reuters pic
Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company’s headquarters in Vienna, Austria, November 16, 2017. — Reuters pic

LONDON, Feb 17 — Sterling remained strong today after its best week in two months last week, as investors priced in looser financial conditions under Britain’s new finance minister.

Rishi Sunak was appointed on Thursday when incumbent Sajid Javid unexpectedly quit as Prime Minister Boris Johnson reshuffled his cabinet.

Johnson wants to increase spending on everything from infrastructure and police to health and education. Sunak has backed higher public spending, most recently speaking in support of multi-billion-pound transport projects.

Sunak is preparing to ease the country’s fiscal rules in his first budget, as he comes under pressure from Downing Street to open the spending taps, the Financial Times reported on Friday.

“Building expectations for looser fiscal policy are helping to boost optimism that the UK economy could outperform this year at least relative to downbeat expectations and other major economies,” said Lee Hardman, currency analyst at MUFG.

“The positive impact on the pound from the improving outlook for the UK’s economy is outweighing the negative weight provided by continued concerns over the UK’s future trading relationships in the near-term,” Hardman said.

The pound was last trading neutral at US$1.3037 (RM5.40), moving away from the recent low of US$1.2873. Against the euro, the pound was slightly weaker at 83.18 pence.

Later this week, traders will be watching the February flash composite purchasing managers’ index data, which could serve as a guideline to the Bank of England’s future monetary policy.

The BoE left interest rates unchanged at 0.75 per cent last month. Some market participants had expected the central bank to cut interest rates and loosen monetary policy.

“After the strong bounces in the January PMI data, the extent to which this is sustained in February will be key for UK rate sentiment,” said Adam Cole, currency strategist at RBC Capital Markets. — Reuters

Related Articles