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Sterling slips as investors trim their holdings before BoE meeting

Argentina peso in peril for capital flows


Wednesday, 9 May 2018


LONDON, May 08 (Reuters): Sterling slipped on Tuesday as investors continued to trim their pound holdings before a Bank of England (BoE) meeting on Thursday, when the central bank is expected to keep interest rates on hold, and as worries about Brexit negotiations resurface.
The pound, which has fallen heavily in recent weeks on expectations the BoE would not, as earlier believed, tighten monetary policy because of a relatively weak economy, fell 0.4 percent to $1.3503 versus the dollar. Sterling is off the low of $1.3487 it hit on Friday, which had erased all of the 2018 gains for what had been one of the best performing G10 currencies, but downward selling pressure remains.
Meanwhile, Argentina's three recent interest rate increases to halt the peso's collapse can be traced back to a late-December government press conference which have left the country more vulnerable to international investor sentiment and capital flows.
A spike in the U.S. dollar in recent weeks and higher U.S. interest rates tested investor's confidence in emerging markets and Argentina in particular, forcing the government of Mauricio Macri into shocking the peso back to life just four months after easing monetary policy. After the peso hit an historic closing low versus the U.S. dollar of 22.40 last week, Argentina lifted its benchmark interest rate to 40 percent while tightening the fiscal deficit target to 2.7 percent of gross domestic product from 3.2 percent.
The Argentine authorities seem to have stopped, for now, a run on the country's currency, but the higher interest rates and tighter fiscal policy needed to stabilize the peso could be costly down the road.