LONDON (Reuters) - Sterling edged to just below $1.30 on Friday after data showed British consumers have suffered the longest decline in spending power since the 1970s, though it stayed close to a six-week high on bets for interest rate hikes in the coming months.
The latest figures from the Office for National Statistics painted a bleak picture for consumers who are facing the double hit of rising inflation — caused in large part by the fall in the pound since the Brexit vote — and slowing wage growth.
Having earlier traded as high as $1.3030, its strongest since May 23 and close to a nine-month high, sterling inched down 0.2 percent on the day to $1.2982 after the data.
Against a weaker euro, sterling was up 0.3 percent at 87.77 pence, close to a one-week high.
“The data is broadly in line with expectations — it’s showing that the economy did lose some momentum at the start of this year and that consumer spending has been squeezed by higher inflation,” said MUFG strategist Lee Hardman.
“I suppose that makes the market slightly question the build-up in expectations that we’ve seen in recent weeks over whether the Bank of England will raise rates.”
Hardman added that he did still expect the BoE to hike interest rates at least once before the end of the year, which would be sterling-positive.
Despite Friday’s modest move lower against the dollar, the pound has risen around 3.2 percent since the start of April — its best quarterly performance in two years and its second straight quarter of gains after six successive losses.
Sterling has benefited over the quarter from a dollar weakened by weak U.S. data and the fading of the “Trumpflation trade”, with investors disappointed that U.S. President Donald Trump was not so far following through with promised policies that would boost growth and inflation.
It has also been boosted by rising expectations that monetary policy could be tightened. It was given a significant lift this week when BoE Governor Mark Carney said a rate rise was likely to be needed as the economy came closer to running at full capacity, and that the Bank would debate this in the coming months.
British Prime Minister Theresa May’s winning of backing for her policy programme on Thursday — albeit with a slender parliamentary majority - was also seen as a positive by some investors.
“With UK domestic political uncertainty now dissipating somewhat, the focus is likely to turn to headlines surrounding the Brexit negotiations, as well as monetary policy developments,” said IronFX analyst Charalambos Pissouros.
“In our view, the short-term outlook for sterling is cautiously positive.”
Editing by Catherine Evans