Goldman Sachs Asset Management said the British pound is set to strengthen against the US dollar as the Bank of England is poised to raise interest rates sooner than the market predicts.
The pound has fallen 3 percent from this year’s high against the US dollar as markets have pushed back estimates for when the central bank will act until beyond December next year.
Goldman Sachs Asset Management predicts policymakers will move in the first quarter and the market is “now properly underestimating that risk,” the firm’s Sydney-based head of fixed income Philip Moffitt said.
British data this month have shown the jobless rate unexpectedly dropped to its lowest level since 2008 and wage growth, excluding bonuses, was near its highest in six years.
“When we look at all the major economies, the UK seems to be the one where the labor market tightening up actually seems to be generating some signs of wage inflation,” Moffitt said. “We’ve had a view for quite a while that the Bank of England would be moving early next year, and they’ve not said anything for us to change our view.”
The pound was little changed at US$1.5453 as of 8:07am in London yesterday, having fallen from this year’s high of US$1.5930 set on June 18.
The pound has fallen against all of its 16 major counterparts since the US Federal Reserve’s Sept. 17 decision to keep its own benchmark rate on hold. The Fed cited increased global risks in its policy statement, fueling speculation the same reasons will restrain the Bank of England.
The pound has slumped 0.9 percent against the US dollar since then.
Bank of England policymaker Kristin Forbes last week said the next move in British interest rates would be higher and it should happen “sooner rather than later.”
The nation’s economic prospects can survive the current difficulties in emerging markets and domestically led growth “shows all signs of continuing, even if at a more moderate pace,” she said in a speech on Friday.
Forbes’ confidence is not reflected in markets, with forward contracts based on the Sterling Overnight Index Average suggesting a full 25 basis-point increase in the UK central bank’s key rate would not happen until later than December next year. The central bank has kept its benchmark at a record-low 0.5 percent since March 2009.
Meanwhile, hedge funds and other money managers had increased net bearish bets on the pound to 7,527 contracts in the week through Tuesday last week, from 4,533 the previous week, according to the US Commodity Futures Trading Commission.
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