The pound strengthened against its major opponents in the European session on Tuesday, after the Bank of England member Gertjan Vlieghe remarked that one or two rate hikes per year would probably be needed should UK wage and productivity picked up.
Understanding the main channels through which QE works is going to be very important when it comes to unwinding QE, Vlieghe said at a speech before Imperial College Business School in London.
Unwinding QE need not have a material impact on the shape of the yield curve, or on the economy, if done gradually, he said.
He estimated one to two rate hikes a year, if wage and productivity growth picked up.
European stocks advanced amid reports of a compromise on Italy’s budget among the government coalition members.
Analysts say that the country will not walk off the European Union, despite the pressure to announce populist measures that will require billions in additional spending.
Investors also looked ahead to the upcoming Fed meeting for clues to future rate increases.
The pound showed mixed trading against its major rivals in the Asian session. While it held steady against the euro and the yen, it rose against the franc. Against the greenback, it dropped.
The pound advanced to a 4-day high of 148.52 against the yen, from a low of 147.81 hit at 3:15 am ET. The next possible resistance for the pound is seen around the 150.00 area.
Data from the Bank of Japan showed that Japan producer prices rose 1.3 percent on year in August – exceeding expectations for an increase of 1.1 percent, which would have been unchanged from the July reading.
On a monthly basis, producer prices were unchanged after rising 0.1 percent in the previous month.
Having dropped to 1.3095 against the greenback at 3:00 am ET, the pound reversed direction and climbed to 1.3161. On the upside, 1.33 is likely seen as the next resistance level for the pound.
The pound rose to a 4-day high of 1.2717 against the franc, after falling to 1.2642 at 5:00 pm ET. The pound is poised to find resistance around the 1.29 level.
After falling to 0.8975 against the euro at 3:00 am ET, the pound reversed direction and edged up to 0.8940. The pound is seen finding resistance around the 0.88 level.
Data from the Federal Statistical Office showed that Germany’s wholesale price inflation accelerated in August largely driven by fuel cost.
Wholesale price inflation rose to 3.8 percent in August from 3.6 percent in July. This was the fastest increase in wholesale prices since April 2017.
Looking ahead, Federal housing finance agency’s U.S. house price index and S&P/Case-Shiller home price index for July and consumer confidence index for September are due in the New York session.