Photographer: Andrew Brookes/Getty Images/Cultura

Pound Falls to 2009 Low With Market Turmoil Seen Hemming in BOE

  • Sterling weakens against most of its 16 major counterparts
  • Deutsche Bank sees pound falling to $1.15 by end of 2017

The pound sank to its lowest level since March 2009 amid concern that instability in global equities and emerging markets would further hamper the Bank of England’s ability to tighten monetary policy.

Sterling weakened against most of its major peers even as data this week showed the inflation rate picked up and wage growth slowed less than economists expected. It advanced against the euro as European Central Bank President Mario Draghi said policy makers in March may bolster stimulus, which tends to debase the 19-member currency.

BOE Governor Mark Carney said on Jan. 19 that “now is not yet the time to raise interest rates," further diminishing the outlook for the pound. Deutsche Bank AG on Thursday reiterated its call that sterling would tumble to $1.15 by the end of 2017.

“You would have expected the pound to lift a little bit after yesterday’s better-than-expected job figures however that hasn’t been the case because the currency markets are purely trading on equity risk at the moment,” said Harry Adams, head of trading at Argentex LLP, a currency advisory company in London.

Emerging Markets

Emerging-market woes, especially from Russia where the ruble hit a record low this week, “signals lower inflation, which the BOE is looking at,” Adams said. “They won’t budge on interest rates until inflation picks up.”

The pound dropped 0.3 percent to $1.4157 as of 4:07 p.m. London time, and earlier touched $1.4086, the lowest in almost seven years. Sterling appreciated 0.4 percent to 76.47 per euro.

The Stoxx Europe 600 Index of shares added 1.9 percent, following its worst slump since August.

The pound is headed for a fourth successive weekly decline, its longest losing streak since last January, as investors speculate the BOE will keep rates at a record-low 0.5 percent for at least the next year and concerns mount that the U.K. may vote to leave the European Union in a referendum.

The BOE’s Monetary Policy Committee has put the labor market at the heart of its debate over when to raise rates. Official Martin Weale said that stronger wage growth was needed to meet the inflation target of 2 percent and that the improvement was “likely to happen,” in a speech published Thursday.

Sonia Signals

Forward contracts based on the sterling overnight index average, or Sonia, aren’t fully pricing in a quarter-point increase to the U.K.’s main rate until after March 2017.

“Sterling has fallen more than recent events justify, but drivers could intensify,” said John Wraith, head of U.K. rates strategy at UBS Group AG in London in a report. “Concerns around the risk of Brexit are likely to get more serious as the referendum approaches. This could exacerbate the downside pressure on sterling.”

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