Sterling Falters Near Three-Month Low Amid Hawkish Rate Expectations

Sterling traded cautiously against major currencies on Friday and was marginally firmer versus the US Dollar, hovering around 1.3220 in the European session.

The currency remained close to an almost three-month low of 1.3200, with a weekly decline of 1.27% against the greenback as markets questioned hawkish Bank of England rate expectations.

The swaps curve continued to imply about 100bps of BoE hikes over the next 12 months, taking Bank Rate to 4.75%, even as the current setting of 3.75% sat near the top of the BoE’s estimated 2% to 4% neutral range.

The UK economy was described as operating below capacity, while fiscal policy was expected to turn more restrictive.