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Sterling inches higher, investors split on BoE rate hike

Sterling rose against the dollar on Friday, investors still weighing the likelihood of an interest rate rise from the Bank of England after labour market data this week offset some worries over Britain’s exit from the European Union.

The pound has recovered from its losses after Britain’s election in June as a number of BoE policymakers have spoken out in favour of reversing a rate cut delivered in the wake of the Brexit vote last year.

Investors are split over the Bank’s stance on rates, but say arguments for a hike are increasing given economic data has held steady in the face of inflation that is nearly 1 percent over the Bank’s 2 percent target.

While British workers saw their pay fall further behind inflation in the three months to May, wages rose marginally more than has been expected, data showed.

Sterling was up 0.1 percent at $1.2954 by 0812 GMT.

It was 0.1 percent lower at 88.13 pence per euro.

“Unemployment is lower, wages have shown solid gains over the past three months and more workers are being added to the market, implying we are not yet at the end of this cycle,” said Jordan Rochester, currency strategist with Nomura, who has called for a BoE rate hike as soon as August.

“Overall, though, so far the economy has held up well ‘despite Brexit’, and this is why a removal of ’emergency stimulus’ should not be regarded as entirely implausible.”

But political uncertainty was also on investors’ minds in a week that saw the British government published legislation that would sever the UK’s political, financial and legal ties to the EU.

Ratings agency Moody’s said this week that Britain’s creditworthiness was under pressure following the Brexit vote, and the ongoing uncertainty over the outcome of two years of negotiations Britain will have with Brussels.

The government also fleshed out its negotiating stance with the EU, publishing three position papers saying Britain would quit nuclear body Euratom and leave the jursidiction of the European Court of Justice.

“On the whole, I think caution is certainly warranted -political uncertainty persists if anything,” said Credit Agricole’s Valentin Marinov.

“(The BoE) is a supportive factor for the pound but in the big scheme of things it’s not a game changer … We believe the better strategy is to sell the rally in any of the pound crosses.”  (Reuters)

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