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Sterling set for first weekly gain since January

written by Bella Palmer

Sterling was up 0.1% versus the dollar but set to close the week 0.54% higher, in its first rise since the week ending on January 12

Sterling was on track for its first weekly gain versus the dollar since mid-January on growing risk appetite and some strong UK economic data.

Traders see the pound as a "risk currency" that moves in accordance with similar assets, most typically equities, and world shares capped a record-breaking week after U.S. chipmaker Nvidia's strong earnings boosted tech stocks.

A survey showed strong growth for services firms and business optimism at a two-year high. But British consumer sentiment dropped for the first time in four months in February.

The pound has consolidated at a higher level this morning, undeterred by an unexpected decline in GfK consumer confidence, according to Kyle Chapman, forex analyst at Ballinger Group.

A global risk asset inflow keeps sterling buoyed in spite a widening US yield advantage. Forex has detached somewhat from rate spreads over the past few days, Chapman said.

Sterling was up 0.1% versus the dollar but set to close the week 0.54% higher, in its first rise since the week ending on January 12.

The pound correlation with global equities has started to soften but stays stronger than the U.S. dollar risk correlation and may prompt some pound firming if this risk appetite continues, said Derek Halpenny, head of research, global markets EMEA and international securities, at MUFG Bank.

Nonetheless, investors remained focused on the BoE policy path as higher rates would support the pound.

Analysts said recent data showed inflation pressures were likely to keep the Bank of England wary about trimming borrowing costs.

While money markets are pricing a 25 bps rate reduction by the ECB and the Fed, per the CME FedWatch Tool, by June, they are discounting less than a 50% probability of such a move from the Bank of England.

Analysts also flagged that Bank of England policymaker Megan Greene said on Thursday she wanted more evidence that inflation pressures were easing before voting to reduce rates.


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