January 29, 2020 / 9:41 AM / a month ago

Pound near one-week lows before knife-edge central bank decision

LONDON(Reuters) - Britain’s pound held near one-week lows against the dollar on Wednesday on the eve of a knife-edge rate decision by the central bank, with broad dollar strength also weighing on the currency.

Though expectations of a rate cut have substantially dropped recently after some robust data last week, they still remain at a chunky 46% suggesting the rate decision might inject some volatility into the pound.

Indeed, overnight gauges of market volatility have surged to more than 15%, a one-month high, as investors prepared for the central bank’s first meeting of the year.

British house prices rose in January at their fastest annual rate since November 2018, adding to signs of economic confidence since December’s election that have prompted money markets to scale back their expectations of a rate cut.

Money markets currently price a 46% chance of a 25 basis point rate cut to the BoE’s 0.75% policy rate - compared to around 70% at the start of last week.

The pound fell 0.1% against the U.S. dollar to $1.3009. It was up 0.1% against the euro at 84.50 pence.

“We’re just really going to be range-trading ahead of the Bank of England tomorrow,” said Adam Cole, chief currency strategist at RBC Capital Markets.

“OIS pricing is pretty much 50-50, so we should see a decent reaction whatever outcome,” he added.

The British government said it will introduce a bill into parliament on Wednesday for legislation to end automatic rights for European Union vessels to fish in UK waters.

The development comes as talk that the EU wants UK fishing rights in exchange draws the industry into a political struggle between the bloc and its departing member.

Britain will have to compromise on issues such as consumer rights and environment protection if it wants to maintain full access to the European Union’s single market, German Foreign Minister Heiko Maas said on Wednesday.

Reporting by Yoruk Bahceli; Editing by William Maclean and Chizu Nomiyama

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