The pound weakened against the euro for the first time in three days after the Confederation of British Industry lowered its forecasts for U.K. growth.
Sterling also declined against all but three of its 16 major peers as the lobbying group cited a lack of productivity and overseas demand as well as the looming referendum on Britain’s membership of the European Union. That vote was back on the agenda Monday as Prime Minister David Cameron’s spokeswoman denied that ministers had received an ultimatum to back EU membership or quit the government.
“The CBI cut their current outlook for the U.K. -- that’s weighing on sterling today as well as U.K. referendum fears,” said Eimear Daly, a currency strategist at Standard Chartered Plc in London. The referendum could “undermine foreign investor demand for U.K. assets,” she said.
The pound weakened 1 percent to 73.48 pence per euro as of 5:09 p.m. London time, extending last week’s 1.3 percent decline. It rose 0.1 percent to $1.5292.
The CBI cut its U.K. growth forecasts to 2.4 percent this year and 2.5 percent in 2016, down from 2.7 percent and 2.6 percent previously. CBI Director-General John Cridland said that the EU referendum, which Cameron has promised to hold by the end of 2017, is a “a hot topic in Britain’s boardrooms.”
Also on traders’ radar screens this week is the annual Mansion House dinner on Wednesday, which will be addressed by Bank of England Governor Mark Carney and Chancellor of the Exchequer George Osborne.
At last year’s event, Carney caught investors unawares when he said U.K. interest rates could be raised “sooner than markets currently expect,” prompting the pound to reach a 1 1/2-year high versus the euro.
It’s unlikely the central-bank chief will surprise investors this time around because the BOE is “on record as viewing further strength in the currency as undesirable” given its ambition to boost inflation, said John Wraith, head of U.K. rates strategy at UBS Group AG in London.
Benchmark 10-year government bond yields fell three basis points, or 0.03 percentage point, to 2.05 percent. The 5 percent gilt due in March 2025 rose 0.26, or 2.60 pounds per 1,000-pound face amount, to 125.905.