Sterling ticks higher ahead of BoE meeting

·2 min read

* Graphic: World FX rates in 2020

* Graphic: Trade-weighted sterling since Brexit vote

By Ritvik Carvalho

LONDON, August 4 (Reuters) - Sterling ticked higher against the dollar on Wednesday, buoyed by risk sentiment in markets, optimism over the outlook for COVID-19 in Britain and anticipation of a hawkish turn from the Bank of England when it meets on Thursday.

Sterling has rebounded after most lockdown measures in England were dropped on July 19, reaching as high as $1.3984 at the end of the month. Since then it has stayed mostly above $1.39.

Eyes are also on the BoE, which is expected to maintain its nearly 900 billion pound ($1.25 trillion) bond-buying programme, although two policymakers have broken ranks to suggest that the time for tighter monetary policy might be nearing.

The BoE is expected to be among the first of the world's main central banks to begin the process of stopping stimulus support.

Overnight implied volatility on the pound increased by 2 points, indicating that traders are bracing for potential swings in the currency around the central bank meeting.

"We think meaningful BoE shifts will wait until after unemployment support via the furlough scheme is over so the Bank can get a cleaner read on the labour market," said CitiFX analyst Adam Pickett, in a note to clients.

"Hint on liftoff contingencies in the minutes and risks around an updated QT strategy also leave hawkish risks. Net-net we don't think we see enough to move GBP this week."

The currency was up 0.2% versus the dollar, at $1.3934 by 0811 GMT. Against the euro, it was 0.1% stronger, at 85.13 pence per euro..

A final reading of services and composite purchasing managers indexes in Britain for July is due at 0830 GMT. (Reporting by Ritvik Carvalho; Editing by Simon Cameron-Moore)

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