The British pound capped a record 10th week of consecutive losses against the euro on Friday as weak data and the growing possibility of interest rate cuts in the event of a chaotic Brexit kept investors sidelined.
The possibility that the Bank of England could raise rates has been one of the few supports for the pound in the past few weeks, as the US Federal Reserve, the European Central Bank and other central banks turned dovish.
Recent dismal data have dashed those hopes.
At the same time, concern has grown about a no-deal Brexit. The favorite to be the UK’s next prime minister, former British secretary of state for foreign and commonwealth affairs Boris Johnson, sees an Oct. 31 deadline as set in stone, regardless of whether the UK reaches a fresh agreement with the EU on the terms of its departure.
“We expect the pound to continue weakening heading into the crunch autumn Brexit period,” Mitsubishi UFJ Financial Group Inc analysts said in a note to clients. “The pound sell-off remains relentless with no clear end in sight.”
At a Thomson Reuters event on Friday, senior BOE official Gertjan Vlieghe said the central bank might need to cut rates almost to zero in the event of a no-deal Brexit and it was not clear how long it would take for them to rise again.
Vlieghe also said that a scenario in which the BOE cuts rates “is more possible” than a scenario in which it raises rates.
For those reasons the pound has struggled this week, notably against the US dollar and the euro.
Against the common currency, the pound on Friday fell 0.1 percent and lost 0.2 percent for the week.
Against the US dollar, the pound on Friday edged 0.4 percent higher to US$1.2572, also up 0.4 percent for the week.
However, some market watchers are turning optimistic towards the British currency after its recent drop.
In trade-weighted terms, sterling “already trades at crisis levels and typically struggles to go much lower,” Nomura Holdings Inc currency strategist Jordan Rochester said.
“A no-deal Brexit is a risk and would certainly make new lows in sterling, but that’s still a few months away and we do not expect the market to assign a high hard Brexit premium until parliament returns after the summer break in September,” Rochester said.
Moreover, with UK inflation expected to remain at the central bank’s target rate of 2 percent last month, according to economists polled by Reuters, the BOE should remain “on the sidelines for now until a new governor is chosen and in place in February 2020,” he said.
The consumer price index is to be released on Wednesday.
In Taipei, the New Taiwan dollar on Friday fell against the greenback, losing NT$0.055 to close at the day’s low of NT$31.081, but up 0.08 percent from last week’s NT$31.107.
Additional reporting by CNA and staff writer
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