Sterling heads for weekly loss, focus on Jackson Hole symposium

By Johann M Cherian

Aug 28 (Reuters) – Sterling was headed for its first weekly drop against the dollar in more than a month on Friday as expectations for a Bank of England interest rate hike this year receded, ahead of a key U.S. Federal Reserve symposium at Jackson Hole.

The British pound eased about 0.1% at $1.3582 to a more than one-week low and was set for a weekly drop of 0.4%. The euro was broadly steady versus the UK currency and was set for a weekly rise of 0.1%. It last fetched 85.69 pence.

This week’s losses were largely driven by dollar strength as the U.S. currency recouped some losses and as investors cut some of their bets for an interest rate hike by the BoE this year, even as the war in the Middle East has kept energy prices elevated.

Traders are currently pricing in about 25 basis points of rate hikes by December, according to LSEG-compiled data, down from the 30 bps they were wagering more than a week ago.

Markets were also awaiting any clues on fiscal plans from Britain’s new Andy Burnham-led government as parliament re-convenes next week. The broader budget is expected in October, against a backdrop of fiscal concerns.

“The Bank of England will wait first for the budget, for the government to set up and to reveal its own policy, and then adopt accordingly,” said Ipek Ozkardeskaya, senior market analyst at Swissquote Bank.

“A scenario where Burnham’s budget is not that expensive, the growth output will be less, but then the pressure on inflation will be less as well. So then the Bank of England could remain contained and wait a little bit longer.”

As part of Britain’s fiscal plans, key focus will be on defence spending at a time when European economies are under pressure to finance their own defence needs and reduce their reliance on the U.S.

On Thursday, Russia warned that it could strike British military targets inside and outside Ukraine in response to Ukrainian attacks on targets inside Russia using long-range British cruise missiles.

Focus will now shift to the Jackson Hole economic symposium in Wyoming at 1400 GMT, with investors keen on any of Chairman Kevin Warsh’s thoughts on monetary policy outlook.

“Warsh may preview the Fed five task forces’ early findings on communications, the balance sheet, economic data, productivity and jobs, and the inflation frameworks,” said Elias Haddad, global head of markets strategy at Brown Brothers Harriman.

Warsh established the five task forces on the workings of the Fed at the start of his term, and has said their findings will influence his future plans.

(Reporting by Johann M Cherian in Bengaluru; Editing by Jan Harvey)