Sterling nears 2018 lows as markets turn wary before BOE vote

LONDON (Reuters) - The pound fell on Monday as the dollar strengthened, with traders reluctant to buy sterling before a Bank of England policy meeting this week and another expected parliamentary confrontation over the government’s Brexit plans.

A bank employee counts pound notes at Kasikornbank in Bangkok, Thailand, October 12, 2010. REUTERS/Sukree Sukplang/File Photo

With an escalating trade dispute between the United States and China keeping broader currency markets cautious, and little in the way of major British economic data scheduled for the next few days, analysts said the pound was expected to remain in a narrow range before Thursday’s central bank meeting.

Prime Minister Theresa May’s Brexit plans face the prospect of rejection by parliament’s upper chamber later on Monday, setting the stage for a high-stakes confrontation with rebel lawmakers later in the week.

“The key event of the week for the pound is the BoE meeting this Thursday. We expect the pound price action to be rather muted both going into the meeting and after it, given the likely fairly vague policy signal in the post-meeting statement,” ING analysts said.

Sterling fell a quarter of a percent to $1.3246 versus the dollar, not far from the seven-month low of $1.3205 hit late last month.

There was little support from positioning data, with net long positions in the British currency holding near 2018 lows.

Goldman Sachs strategists believe markets may be getting ahead of themselves in expecting an interest rate increase in August, potentially opening the door to more losses in the British currency.

The currency has been stuck in a downtrend since April, hit by receding expectations that the Bank of England will follow the U.S. Federal Reserve in tightening monetary policy and by concerns about a British economic slowdown at a time when the country’s relationship with the European Union is still unclear.

The pound also fell against the euro, dipping by 0.2 percent to 87.62 pence.

ACLS analyst Marshall Gittler said that the market had priced the likelihood of an August Bank of England interest rate hike at 50 percent but slowing earnings means there is little urgency to increase rates.

Reporting by Tommy Wilkes; Editing by Andrew Heavens