July 4, 2019 / 8:34 AM / 16 days ago

Sterling stuck near two-week lows, hobbled by increased rate cut bets

* Sterling recovers slightly as dollar tumbles

* Both BoE and Fed expected to cut interest rates

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

By OLGA COTAGA

LONDON, July 4 (Reuters) - Sterling was stuck near two-week lows on Thursday after heavy falls in recent days on growing expectations that the Bank of England’s next policy move will be to cut interest rates.

Investors have ramped up their expectations for monetary easing from the world’s central banks this week, and traders believe the BoE, which until recently had signalled its next move would be to tighten, will not be able to resist the pressure to ease.

A speech by BoE Governor Mark Carney this week convinced money markets to price in a rate cut over the next 12 months.

Falling Treasury yields in the United States have boosted expectations the U.S. Federal Reserve will cut interest rates this month for the first time in a decade, leaving sterling/dollar in a tight trading range.

Weak British economic figures have added to investors’ sense that the BoE will lower borrowing costs.

Sterling recovered slightly from a two-week low reached on Wednesday and was trading flat at $1.2574. Versus the euro, the pound was little changed at 89.73 pence.

Esther Maria Reichelt, an analyst at Commerzbank, said the question of who will replace Theresa May as Britain’s prime minister was key to sterling’s performance, adding: “I don’t see a big driver for sterling until we find out.”

For euro-sterling, “levels around 90 are totally justified,” Reichelt said, given anxiety over what sort of Brexit policy the new leadership will pursue and whether May’s exit deal with Europe can be renegotiated.

Conservative Party members are due to receive postal ballots this weekend to vote for either Boris Johnson or Jeremy Hunt to replace May as the governing party’s leader.

The winner is due to be announced on July 23.

Reporting by Olga Cotaga; Editing by Catherine Evans

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