Pound Slips as Paris Attacks Cloud Europe's Economic Outlookby
Money markets signal no BOE liftoff until after January 2017
Terrorist attacks in Paris weighing on single currency
The pound fell for the first time in six days against the dollar as consumer-price and retail-sales data due this week may show declines, further bolstering the view the Bank of England will wait until 2017 before it tightens monetary policy.
Sterling also strengthened versus the euro, which fell against most of its major peers amid the fallout from the Paris terror attacks. Dovish comments from policy makers last week prompted investors to push back the forecast timing of when the BOE would tighten monetary policy to more than a year after the U.S. Federal Reserve.
“This week we are a little bit cautious” on sterling, said Michael Sneyd, a foreign-exchange strategist at BNP Paribas SA in London. “We are expecting a slight disappointment in the retail sales and CPI data.” He said currency moves “at the open were due to the Paris attack, they were typical risk-off moves,” but would be “short-lived.”
The pound fell 0.2 percent to $1.5207 as of 5:05 p.m. in London after climbing 1.2 percent in the previous five sessions. The British currency strengthened 0.4 percent to 70.41 pence per euro, after touching 70.23 pence, its strongest level since Aug. 7.
While markets signal that the BOE may become the second major central bank after the Fed to tighten policy, recent policy makers’ comments have widened the time lag forecast between the two rate increases to more than a year. The pound might remain under pressure before the minutes of the Fed’s Oct. 27-28 meeting due Wednesday, which may clarify whether officials are leaning toward an interest-rate increase in December.
“The Federal Reserve seems to be moving toward rate hikes,” said Steve Barrow, head of Group-of-10 strategy at Standard Bank Group Ltd. in London. “In the U.K., I’m not sure the momentum is quite as robust after comments last week were somewhat dovish.”
He added that for sterling this week “the emphasis would be more on the downside. Sterling/dollar is in a steady range of around $1.50-$1.55. We are going to head down to the lower end of that range.”
Data due Nov. 17 will show that U.K. consumer prices decreased 0.1 percent in October from a year earlier, according to a Bloomberg survey of economists. This is far from the 2 percent inflation that the BOE targets. Figures releasing Thursday will likely show weaker monthly retail sales, other surveys signaled.
Forward contracts based on the sterling overnight index average, or Sonia, aren’t pricing in any BOE interest-rate increase until after January 2017. Futures pointed to a 64 percent chance of the Fed increasing rates next month.
U.K. government bonds climbed, with the 10-year yield sinking four basis points, or 0.04 percentage point, to 1.94 percent. The 2 percent gilt due September 2025 rose 0.365 or 3.65 pounds per 1,000-pound face amount to 100.54. The Debt Management Office is scheduled to sell 3.25 billion pounds of the benchmark 10-year securities on Nov. 18.