Pound spikes to 10-month high ahead of 'Super Thursday'

The Pound jumped to a 10-month high versus the dollar on Monday (31 July), as traders turned their attention to the Bank of England (BOE), following a dovish report from the US Federal Reserve last week.

The pound continued to trade above $1.31 levels, only registering a minor decline after BOE data pointed to a slowdown in the mortgage market. Figures revealed the number of mortgages approved for house purchase fell to 64,684 in June, down from 65,109 in May; the lowest since September last year.

Earlier in the year, the BOE had predicted that mortgage approvals would average around 71,000 a month in the coming quarters.

The figures nominally dented the pound's trajectory, with the British currency changing hands against the greenback at $1.3131, down 0.04% at 3:01pm BST, as traders attention turns to speculating on 'Super Thursday' when the BOE reveals its latest interest rates decision, minutes of the rate-setting Monetary Policy Committee (MPC) meeting and its quarterly inflation report.

Market commentators expect the BOE to raise its inflation forecasts and lower economic growth projections after the slow start to the year. The City is also pricing in a 40% chance of a rate rise by the end of the year.

"However, we should bear in mind that even if it materialises, a rate hike would only take us back to where we were at the beginning of last August, before the EU referendum result prompted the BOE to cut the base rate to 0.25%," said Laith Khalaf, Senior Analyst at Hargreaves Lansdown.

Ultimately, the rate rise would also serve to boost the pound, and that would help bring inflation down again. However, it would also heap more pressure on UK households by raising mortgage repayment costs, at a time when wage growth is weak.

FXTM Chief Market Strategist Hussein Sayed said after three MPC members voted for an immediate rate hike in June, followed by Hawkish statements from Governor Mark Carney, markets started pricing in a rate hike in August.

"However, data has not been supportive enough and inflation pulled further away from the danger zone of 3% which will most likely keep the BOE on hold for now. The base scenario for the meeting is to keep rates and asset purchase unchanged, but the message from Carney and the tone of the quarterly inflation report will play a major role in the pound's next move."

Meanwhile, the pound was broadly flat against the euro, changing hands at €1.1173 down 0.03% at 3:07pm BST.