Sterling slipped against the dollar and euro today and is on track for its worst week in five on a trade-weighted basis, as investors worried about Britain’s vote to leave the European Union and bet on another cut in interest rates this year.
The Bank of England kept rates at their record lows at yesterday’s policy meeting but signalled that it would cut them again before the end of the year. It cut rates to 0.25 percent in early August and relaunched an asset-purchase programme to cushion the economic blow from Brexit.
Since then, though, economic data pointed towards a less significant hit to the British economy than had been expected. That helped lift sterling to a seven-week high of $1.3445 last week, more than 5 percent above the three-decade low it had plumbed in the aftermath of the vote.
But with the British parliament back in session and focus returning to the uncertainty surrounding the UK’s negotiations to leave the bloc as well as the prospect of further monetary easing, sterling has since slipped almost 2 percent.
It fell 0.3 percent this morning.
Whereas a month ago the market was in a phase of relief that the impact of the referendum hadn’t been that big after all … I think there is now more of a focus on the fact that Brexit hasn’t actually begun yet, and there could still be a rocky ride for the economy.
Sterling also fell 0.2 percent to 85.12 pence per euro. Against the BoE’s trade-weighted basket of currencies, it was down 0.8 percent for the week – the worst performance since early August.