By Greta Rosen Fondahn
LONDON (Reuters) – Sterling briefly dipped against the dollar on Wednesday after Bank of England Governor Andrew Bailey said gradual cuts in interest rates were likely over the coming year, and the process of falling inflation was well embedded.
The pound fell as much as 0.33% to $1.2630 after Bailey’s remarks to the Financial Times Global Boardroom event. But it quickly pared the losses and was last up 0.02% at $1.2675.
The FT reported Bailey as saying the BoE expected four interest rate cuts next year. In the interview, he said that had been the expectation of financial markets when the BoE incorporated them into its most recent economic forecasts.
Asked whether companies should expect four rate cuts next year, Bailey said: “We always condition what we publish in terms of the projection on market rates, and so as you rightly say, that was effectively the view the market had – we emphasised in that report the word ‘gradual’.”
Markets are currently pricing in three UK rate cuts next year.
The pound gained slightly against the euro, with one euro at 82.82 pence, as the market awaited a vote by French lawmakers on no-confidence motions which are all but certain to oust the fragile coalition of Prime Minister Michel Barnier.
“European politics are taking centre stage in terms of the no-confidence vote that we have this afternoon,” said Kirstine Kundby-Nielsen, FX analyst at Danske Bank.
Also in the mix, the S&P Global UK Services Purchasing Managers Index published on Wednesday showed Britain’s dominant services sector lost steam in November, although not by as much as first feared.
The survey showed employment in the services sector fell for a second month, although the pace of decline was less marked than in October.
Markets were also anticipating key U.S. jobs data this week, with U.S. nonfarm payrolls due on Friday and the private payrolls report, the ADP National Employment Report, later on Wednesday.
“ADP today might give some indications of what we can expect for nonfarm on Friday,” Kundby-Nielsen said.
(Reporting by Greta Rosen Fondahn; Editing by Christina Fincher)
