GBP/USD Drops Sharply to 1.6620 on BOE Rate View

The pound is poised to test a six-year high versus the dollar, Barclays Plc says, as futures traders increase bets the U.K. currency will strengthen after falling too far, too fast.

The pound reached its most oversold level since March 2013 this month as it tumbled 1.6 percent in August, the worst performance among major currencies. Sterling’s decline prompted it to breach its 200-day moving average for the first time since September, after Bank of England Governor Mark Carney said policy makers will focus on “weak” wage growth in gauging when to raise interest rates. It has tumbled 3.3 percent since touching $1.7192 on July 15, its highest level since October 2008.

Despite the warning on rates, traders still see a 23 percent chance the BOE will lift borrowing costs this year, compared with 1 percent odds for the U.S. Federal Reserve, overnight-index swaps data show. The pound advanced 0.2 percent yesterday, the most in two weeks, after Carney told the Sunday Times newspaper that officials may lift borrowing costs before seeing a recovery in wages. It plunged 0.7 percent today as inflation slowed more than economists forecast.

Bloomberg

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