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The pound fell to a six-month low against a rallying dollar on Tuesday, while it held its own against a euro dragged down by concerns about a deepening political crisis in Italy.

Sterling has slumped against the dollar since mid-April as expectations of a Bank of England interest rate rise recede and the economy shows signs of prolonged weakness.

Renewed concerns about whether Britain can secure the Brexit deal it wants have also impacted the currency.

Against the dollar, the pound slid as much as 0.7 percent to $1.3205, its weakest since mid-November. The British currency, previously one of the best performers in 2018, is now down more than 2 percent versus the dollar so far this year.

 “We can ascribe a lot of it (pound weakness) to the U.S. dollar but I think sterling has been on the back foot independently,” said Jane Foley, an FX strategist at Rabobank, citing relatively downbeat UK retail sales and inflation data published last week.

Investors are only pricing in a one-in-three chance of the Bank of England raising borrowing costs in August, the next time it updates its economic forecasts.

 “There is nothing in there to restore confidence in the BoE’s ability to raise rates,” Foley said.

David Madden, an analyst at CMC Markets, said the pound remained “in its downward trend” and pointed to $1.32 as a key target.

Versus the euro, sterling has performed much better, and at GMT 1515 on Tuesday traded up 0.3 percent at 87.12 pence per euro.

Worries about divisions within the British government about whether it wants to remain in a customs union with the European Union after it leaves the EU in March 2019 have undermined sentiment towards the pound ahead of an EU summit in June.
However, the euro’s rapid descent – caused by investors buying into dollars and concerns about political uncertainty in Italy – have underpinned the pound and it remains up versus the single currency in 2018.

Source: UK Reuters

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