Yahoo Finance Sterling tumbles to seven-month low as euro enjoys renewed strength
Sterling hit a seven-month low to the euro on Wednesday, after European Central Bank President Mario Draghi waxed lyrical on the European economy, hinting that the bank’s stimulus programme could be drawing to a close.
Unlike its recovery against the dollar after it fell two per cent following the general election result, the pound has been unable to regain ground against the euro.
Just before UK markets opened, sterling was 0.3 per cent lower at 88.8 pence per euro, its lowest level since November 9. Meanwhile, against the dollar, sterling was less than 0.1 per cent higher at $1.28.
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Draghi’s impact on the euro saw Deutsche Bank abandon its forecast for a weaker euro against the dollar, instead predicting that the single currency will rise to $1.16 or higher by the end of this year from a previous $1.03.
During a speech at the ECB Forum in Portugal on Tuesday, Draghi voiced his optimist over the eurozone economy, despite remaining dovish over monetary policy.
“The threat of deflation is gone and reflationary forces are at play,” he said.
Rabobank strategist Jane Foley said: “There’s a vulnerable political and vulnerable economic backdrop (for the UK) and you layer on the more constructive attitude with respect to politics and economics in the euro zone and therefore we get euro sterling trending higher.”
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While Brexit negotiations have kicked off and Prime Minister Theresa May has brokered a deal to form a government, a number of factors are playing on investors’ minds as they consider the long-term outlook for Britain.
May’s future as prime minister has come in to question after her election gamble cost her a parliamentary majority, while members of the Bank of England’s Monetary Police Committee were split earlier this month over whether to raise record low UK interest rates.
During a BBC radio interview on Wednesday, Bank of England deputy governor Jon Cunliffe sided with Carney’s comments that “now was not the time to raise interest rates”. Cunliffe said he wanted to see how far improvements in business investment and exports could compensate for a consumer slowdown before making a move on the base rate.
Speculation mounted last week that Governor Carney’s grip on decision-making at the BoE was weakening when chief economist Andy Haldane said he might break ranks and join dissenters who voted this month for Britain’s first rate hike in a decade.
