Signs of Gloom Push Pound to Its Lowest Level Since April 2017

LONDON (Capital Markets in Africa) – The pound slumped to a two-year low as signs of economic downturn mounted in a market increasingly betting that policy makers will have to cut borrowing costs.

The currency reached its weakest level since April 2017 as disappointing retail sales and suggestions that the U.K. economy could be set for its worst quarter since 2012 sapped sentiment. The bleak economic outlook is adding to risk factors for sterling, with money markets pricing in a rate cut by the Bank of England next year.

The pound has been hobbled in recent weeks by concern about the U.K.’s political risk as the contest to elect the next prime minister approaches its endpoint, with front-runner Boris Johnson keeping a no-deal Brexit on the table. The pound has fallen about 2% since Prime Minister Theresa May indicated that she would be stepping down.

“A general pound malaise has taken us through the lows from Friday,” said Jeremy Stretch, head of G-10 currency strategy at Canadian Imperial Bank of Commerce. “It looks increasingly probable that second-quarter GDP is likely to be negative for the first time since the end of 2012. With the third-quarter outlook also poor, this will add to debate about the BOE joining the global easing trend.”

Sterling tumbled 0.6% to $1.2443, its lowest since April 2017. The currency also slipped 0.4% to 89.98 pence per euro. The yield on U.K. 10-year government bonds was little changed at 0.72%, after touching the lowest since September 2016 last week.

Source: Bloomberg Business News