FX focus: Sterling extends gains against euro and dollar

The pound gained ground against its major rivals on Monday (18 July 2016), beginning a new week of trading in the same fashion it had ended the previous, despite warnings from a Bank of England (BoE) official that stimulus measures might not be implemented next month.

The UK currency briefly flirted with $1.33 and €1.20 earlier in the morning before settling at $1.3253 and €1.1987 by mid-afternoon, up by 0.65% and 0.36% against the dollar and euro respectively.

The pound rallied last week after the BoE caught investors and economists by surprise as it opted to kept interest rates unchanged and hinted at it would implement a stimulus package in August.

Speaking on Monday, however, Monetary Policy Committee member Martin Weale warned Threadneedle Street officials should evaluate the financial and economic landscape for a while longer before intervening.

This uncertainty points to the argument that we should wait for firmer evidence before making any policy change and least in the absence of any strong arguments for an immediate change," he said.

Weale's words, however, did nothing to halt the sterling gains and some analysts suggested traders were now sure the BoE would act next month.

"The relief rally provided an opportunity to sell the pound again as traders realized that easing is not a matter of if, but by how much and when," said FXTM Chief Market Strategist Hussein Sayed.

Elsewhere, the euro gained 0.14% against the US dollar, with the latter extending last week's gains against the yen and rising 0.72% to ¥105.64. Economists believe the short-term outlook could look gloomy for the Japanese currency, notoriously considered a safe haven by investors, as a sense of calm returns to the markets.

"The anti-risk Japanese Yen is facing selling pressure at the start of the trading week," said Ilya Spivak, currency strategist at DailyFX.

"Rhetoric supporting the likelihood of stimulus expansion [from the BoE] in August in line with hints offered in last week's policy announcement is likely to prove supportive for risk appetite. This seems likely to keep the commodity Dollars well-supported while pressuring the yen."