July 31, 2018 / 8:40 AM / 3 months ago

Sterling trades flat before expected BoE hike this week

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

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

LONDON, July 31 (Reuters) - The British pound traded flat on Tuesday as investors prepared for the Bank of England’s monetary policy meeting later this week at which markets are now pricing in a near-90 percent chance of a 25 basis points rate rise.

After falling to its lowest level in 10 months earlier in July on growing worries that Britain was headed for a cliff-edge departure from the European Union, sterling has found its feet and traded higher in recent sessions.

Investors believe that with the BoE seemingly comfortable with the market pricing in a rate rise on Thursday, that is as good enough a signal as they will get that only the second rate hike since the financial crisis is a near-certainty.

But investors will be looking for comments from the Monetary Policy Committee (MPC) as to whether this is the start of a series of tightening moves or, as most reckon, a one-off hike before Britain leaves the EU next March.

“I don’t understand why it is looking to raise rates ... There has been much less healing in the UK household balance sheet than there has been in the U.S. Now we’re reaching this crunch point on Brexit as well,” said David Riley, chief investment strategist at BlueBay Asset Management.

“I think they are going to hike rates on Thursday because they have set it up and Carney doesn’t like the “unreliable boyfriend” (tag). I think they will do it but it will be one and done,” Riley said, referring to accusations that BoE Governor Mark Carney’s guidance on the path for rates has been repeatedly knocked off course by economic surprises.

Against the dollar the pound traded flat at $1.3136 , unchanged on the day. Earlier on Tuesday it had edged higher to $1.3147.

Versus the euro sterling was also flat, at 89.180 pence per euro.

Recent economic data in Britain has pointed to an economy that is recovering from a slowdown in the first-quarter but is still struggling, with wage growth weaker than expected given low levels of unemployment and limited domestic inflationary pressures.

ING analysts said they believed one or two likely dissenters in the MPC and cautious rhetoric from Carney was “unlikely to engender much hawkish spirit in either UK rates or the pound this week, not least as both markets remain dominated by the risk of a no-deal Brexit.” (Reporting by Tommy Wilkes and Dhara Ranasinghe)

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