Pound falls vs US dollar following chatter about more BOE rate cuts
London (Aug 9) The pound fell against the dollar on Tuesday, with some blame going to a Bank of England policy maker who said interest rates can be dropped again and quantitative easing can be expanded.
The British currency GBPUSD, -0.5291% was down to $1.3001 from $1.3039 late Monday in New York, touching levels last seen in mid-July. It has been flitting above and below the closely watched $1.30 mark during Tuesday’s session.
“Bank rate can be cut further, closer to zero, and quantitative easing can be stepped up”, the BOE’s Ian McCafferty wrote in an op-ed for the Times of London newspaper.
Meanwhile, U.K. economic reports on Tuesday showed the country’s manufacturing output fell 0.3% in June, worse than a FactSet consensus of a 0.2% drop, and industrial production rose 0.1% in June, matching expectations. In addition, the U.K.’s trade deficit widened in June.
For the pound, a “broad $1.29/$1.33 range remains intact, but [there is] immediate pressure clearly on the downside,” said Chris Dorman from the U.K. corporate Treasury sales team for Western Union Business Solutions, in a note.
Sterling’s latest slump comes after HSBC, the U.K.’s largest bank by assets, said the pound could trade as low as $1.10 by the end of 2017. The pound must weaken substantially to prevent the U.K.’s current-account deficit, already one of the largest in the developed world, from blowing out in the wake of the Brexit vote, according to HSBC’s analysts.
The ICE U.S. Dollar Index DXY, +0.06% was little changed at 96.40. The euro EURUSD, -0.0992% was at $1.1092, not changed much from $1.1088 late Monday.
Dollar-yen: Meanwhile, the dollar remained largely flat against the yen, with the greenback unable to find clear direction given a lack of fresh cues and fewer market players ahead of Japan’s traditional summer holiday.
The U.S. dollar USDJPY, -0.18% was at ¥102.36, after rising to as high as ¥102.53 earlier in the session. That compared with ¥102.45 late Monday in New York.
The buck has drawn buyers in recent sessions thanks to investors refocusing on the solid U.S. July jobs report, released last week, that has renewed hopes for a Federal Reserve interest-rate increase in 2016.
“We’ve seen dollar buying again after [U.S.] jobs data, thus limiting the downside momentum,” said Yuzo Sakai, manager of FX business promotion at Tokyo Forex & Ueda Harlow.
The dollar briefly breached the ¥102.50-line after China’s inflation data due to “dollar buying on acceptable figures,” Sakai said.
China’s consumer inflation grew 1.8% in July from a year earlier, losing speed for a third straight month. The key inflation reading matched a median 1.8% gain forecast by 17 economists surveyed by The Wall Street Journal.
Sakai said U.S. jobs data alone will unlikely change the underlying trend of a weaker dollar and a higher yen. “I can expect many twists and turns,” he said.
Source: MarketWatch
