Insider Economy Sterling near two-week lows

Sterling near two-week lows

The pound edged lower on Friday, holding near two-week lows against the dollar as a second policymaker joined Bank of England governor Mark Carney in signalling a potential rate cut.

Bank of England policymaker Silvana Tenreyro said she would be inclined to back an interest rate cut in the coming months if growth does not pick up, adding to suggestions that the central bank is edging towards pumping more stimulus into the economy.

Carney said on Thursday there could be a “relatively prompt response” from the bank if the current spell of economic weakness persisted.

Although eventually likely, current talk of a potential rate cut is “premature”, said RBC chief currency strategist Adam Cole.

“Most of the comments we’ve seen have been quite qualified. there is probably sufficient uncertainty in terms of knowing how big the bounce in activity after the election will be, to make the case for waiting and moving later on than sooner,” he added.

The pound was down 0.1% against the dollar in late London trade, at $1.3055, holding close to Thursday’s floor at $1.3014, the lowest level since Dec. 27. It was similarly lower against the euro at 85.13 pence.

Some optimism was generated for the British economy by a survey of recruiters on Friday that showed employers increased their number of new permanent staff for the first time in a year in December.

Analysts say that pound is now being kept weak due to uncertainty around Britain’s future trade relationship with the EU after a transition period expires at the end of the year.

British lawmakers approved legislation on Thursday that will allow Britain to leave the European Union on Jan. 31 with an exit deal, ending more than three years of tumult over the terms of the divorce. However, the vote was considered a non-event for markets after Prime Minister Boris Johnson’s landslide election win in December.

Still, the pound is expected to gain more than 3% against the dollar this year, supported by interest rate differentials and hopes for a smooth departure from the EU, a Reuters poll of nearly 60 forex strategists found on Friday.

The polled analysts also expected that the pound would rise to $1.32 at the end of January.

In the short term, technical analysts highlight support for sterling at the 50-day moving average at 1.3010 that has so far held. But a break below 1.3000 is seen opening the path for sterling to a fall towards 1.2920

Next week investors will be looking at GDP, output and inflation figures from the UK – all due on Monday.

(Reuters)

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