By Amanda Cooper and Canan Sevgili
LONDON (Reuters) -The pound fell against the dollar on Wednesday, after Federal Reserve Chair Jerome Powell offered a cautious view on the need for more rate cuts, which gave the U.S. currency a modest lift.
Sterling was last down 0.35% at $1.34795, having lost 1% in value in the last week. It was steady against the euro , which traded at 87.31 pence. The euro is close to its strongest against the pound in nearly two months and has gained 5.5% versus sterling this year.
A preliminary survey of UK business activity on Tuesday painted a sombre picture for the pound, with general momentum slowing in both the factory and services sectors in the early part of this month.
Investors are not pricing much of a chance of rate cuts until at least March, given the persistence of price pressures throughout the UK economy, which limits the Bank of England’s ability to deliver any stimulus in the form of lower borrowing costs, undermining the pound.
The BoE’s chief Economist Huw Pill, one of the Monetary Policy Committee members who has been most concerned about inflation, said on Tuesday that he was more comfortable with the outlook for price pressures in Britain than he was earlier this year.
Meanwhile, BoE member Megan Greene is set to speak on supply shocks and monetary policy later in the day.
“We’ll hear from a BoE rate setter today but the chances of major adjustments in rate expectations are more likely to be driven by data rather than central bankers’ remarks at this stage” said Francesco Pesole, FX strategist at ING.
“GBP/USD continues to trade near the critical upside trendline at 1.3498, with a daily or weekly close below this level potentially leaving sterling vulnerable against the dollar, said Piotr Matys, Senior FX Analyst at InTouch Capital Markets.
He noted that sterling is affected not only by the Fed, President Donald Trump’s policies, and geopolitics, but also by weak domestic factors.
Matys added that if markets start pricing in a faster pace of Bank of England rate cuts amid escalating concerns over UK public finances, the risk of a sharp decline in GBP/USD would increase.
(Reporting by Amanda Cooper and Canan Sevgili; Editing by Ed Osmond)
