LONDON, Oct 11 (Reuters) – The pound held steady on
Wednesday, recovering some stability after an intensely volatile
week that has been dominated by safe-haven flows on the back of
violence in Israel and by a sudden shift in expectations for
interest rates.
Sterling is nudging at three-week highs against the
dollar and the euro. The rally has been down, in part, to
investors re-evaluating their expectations for U.S. interest
rates and for the outlook for euro zone growth, rather than down
to any standout UK-centric factor.
The pound was last flat at $1.2283 against the dollar and
down 0.1% against the euro at 86.40, providing
sterling traders with some respite from some of the big price
swings seen earlier this week.
Volatility for sterling options that expire in one month’s
time spiked to the highest since July on Tuesday.
Implied volatility – a measure of how traders price an
option – shot to a high of 8.56%, the most since 8.7% on July
24. These options expire after the Bank of England’s next policy
meeting on Nov 2.
Investors have turned mildly bearish on the pound for the
first time since April, having amassed their largest bullish
position in sterling since 2014 just a few weeks ago.
“A slowing UK economy has hurt the pound, especially against
the U.S. dollar, which has benefited from a solid U.S. economy.
However, any signs that UK growth is improving could prompt
speculative positioning to be reassessed – moved to minor shorts
last week just a few months after longs hit the highest since
great financial crisis in July,” DailyFX strategist Manish
Jaradi said.
SIGNS OF SLOWDOWN
An industry body on Wednesday noted British employers cut
their job vacancies for the first time in more than two and half
years in September and reduced their hiring again, a recruiters’
industry body said on Wednesday, adding to signs of a cooling in
the labour market.
The Recruitment and Employment Confederation (REC) said
there were signs a protracted slowdown in permanent hiring might
now be bottoming out, something the Bank of England will factor
into its thinking about the need for further interest rate
increases to fight inflation pressures.
The outlook is not exactly reassuring. Having avoided
recession so far this year, the UK is set to have the
slowest-growing economy among the Group of Seven nations next
year, just as the country will likely head to the polls for a
general election, according to forecasts published by the
International Monetary Fund on Tuesday.
The IMF said the outlook reflects the need for the BoE to
keep rates high to bring down inflation, which is still above
6%.
The economy is expected to have grown by 0.2% in August,
following July’s surprise 0.5% contraction, based on a Reuters
poll of analysts ahead of Thursday’s gross domestic product data
release.
Year-on-year, UK GDP is forecast to have expanded by 0.5% in
August, from 0.0% growth in July.
Expectations for UK rates are split around 50/50 on one more
rate hike from the Bank of England.
(Reporting by Amanda Cooper; Editing by Sharon Singleton)
