Pound Extends Loss Before BOE on Shaky Politics, Stronger Dollar

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The pound weakened for the fourth day against the dollar, dropping to a fresh seven-month low before the Bank of England’s monetary-policy announcement later in the day.

Sterling has lost 1 percent this week, after a similar decline in the previous five days, weighed down by political turbulence in the U.K. as well as broader dollar strength. While the BOE isn’t expected to adjust interest rates Thursday, markets will be looking for guidance on future policy path to see if a rate increase in August is still a possibility.

Money markets are currently pricing about a 48 percent chance of a 25-basis-point hike in August, down from 55 percent at the start of last week.


Weaker U.K. economic data and uncertainty over Brexit have made economists and strategists increasingly skeptical that the BOE will be able to tighten policy at the pace previously thought, clouding the pound’s outlook. Markets will focus on the vote split among the rate-setting Monetary Policy Committee members, followed by Governor Mark Carney’s Mansion House speech later Thursday.

“The market at least assumes that the BOE will keep rates unchanged today,” said Antje Praefcke, senior currency strategist at Commerzbank AG. “What will be more interesting is whether the two hawks on the MPC will still vote in favor of a rate hike or whether they will become more cautious.”

A dovish change from last month’s 7-2 vote split “would further delay the market’s rate expectations — with negative effects for sterling that is already suffering due to Brexit developments,” she said.

The pound fell 0.3 percent to $1.3138 after sliding earlier to $1.3125, the lowest level since mid-November. Against the euro, it slipped 0.1 percent to 87.95 pence. The yield on 10-year gilts was little changed at 1.30 percent.