LONDON (Reuters) – Sterling rose against the dollar on Friday, after a series of lifelines for struggling banks helped restore some investor confidence, trouncing this week’s spring budget as a catalyst for the pound.
By 1014 GMT, the pound was up 0.2% against the dollar, at $1.213, and 0.1% lower against the euro, at 87.790 pence.
Finance minister Jeremy Hunt announced the budget on Wednesday, unveiling childcare and pension reforms as well as corporate tax breaks. He also said the UK is now set to avoid a recession this year, but the impact on sterling was limited.
“It was overshadowed. It is very hard to see that having a big impact on sterling at all,” said Francesco Pesole, FX strategist at ING, pointing to broader market turmoil around the banking system.
First Republic Bank got a $30 billion lifeline from a cohort of large U.S. banks on Thursday. It followed a dramatic day on Wednesday that saw the Swiss National Bank step in to offer Credit Suisse a $54-billion injection to shore up liquidity and restore investor confidence.
The European Central Bank, which kept to its plan to raise interest rates by 50 basis points on Thursday, has convened an unscheduled meeting of its Supervisory Board on Friday to discuss stress and vulnerabilities in the euro zone bank sector after a recent selloff in bank shares, a spokesperson said.
As of Friday morning, the market was pricing in a 51% chance of no change to the base rate by the Bank of England next week, and a slightly lesser chance of a 25 basis points hike.
A survey published by the BoE on Friday showed the British public’s expectations for inflation have fallen. The central bank meets next Thursday to discuss monetary policy and whether to increase rates for the 11th meeting in a row.
The challenge facing the BoE in bringing CPI back to target may have got a little bit easier, if today’s release of the latest quarterly inflation attitudes survey is anything to go by,” said Stuart Cole, head macro economist at Equiti Capital.
The risk of a wages/price spiral has been a key factor behind the rapid rises seen in interest rates to date and any signs that this pressure may potentially be easing may be enough to persuade the BoE to slow down the pace of tightening going forward.
(This story has been refiled to change the day to Thursday from Friday in paragraph 1)
(Reporting by Lucy Raitano; Editing by Savio D’Souza)
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