Sterling gains ahead of BoE meeting - REUTERS
* BoE decision at 1100 GMT
* Sterling gains 0.2% vs dollar and euro
* Graphic: World FX rates in 2020 tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv
LONDON, Aug 5 (Reuters) - The British pound rose on Thursday ahead of a Bank of England meeting at which policymakers are expected to keep stimulus pumping despite rising inflation and a strong economic recovery.
Investors will be closely watching for any signals from the central bank on its plan for how it will eventually reverse its stimulus, with some policymakers elsewhere beginning to taper asset purchases.
Sterling has been a strong performer in recent weeks as COVID-19 cases -- while still high -- have fallen and high vaccination rates allow the government to lift most social-distancing rules.
Britain’s economy has recouped much of its 10% crash of 2020 and is on course to match the United States and grow at the fastest pace among big rich nations this year.
Inflation jumped to 2.5% in June and the BoE will say in a new set of forecasts that it is on course to rise even further about its 2% target in the months ahead.
“We do not expect the BoE to deliver a hawkish shift in policy today, with likely no hints at an earlier hike and no more than two votes for an earlier end to QE (quantative easing). Balance-sheet reduction talks will be in focus as well. On balance, we expect a limited GBP impact,” said analysts at ING.
They added that, if anything, there was a risk of sterling falling as investors reprice the possibility of a hawkish tilt from the central bank. Two dissenting policymakers calling for a cut to stimulus had spurred a rally in the pound.
Sterling rose 0.2% to $1.3924.
Against the euro, the pound was also 0.2% higher versus 85.09 pence.
“Overall, we have become more confident in our bullish pound outlook. While there is a risk that the BoE could disappoint hawkish expectations today, any pound weakness should be temporary,” said Lee Hardman, an analyst at MUFG, citing Britain’s strong economic momentum. (Reporting by Tommy Wilkes, Editing by Timothy Heritage)