Sterling drops further against the US Dollar

  • Posted by Shyam Gokani in Uncategorised
  • May 9, 2016
  • No Comments

Sterling fell to a two-week low against the dollar on Monday, hurt in part by an opinion poll that showed the race between those who want to stay in the European Union and those who want to leave is still on a knife edged.

A YouGov opinion poll for ITV television showed the “In” campaign leading by 42 percent to 40 percent for the “Out” camp.

Traders also pointed to a Sunday Times report that said Bank of England chief Mark Carney was preparing to cut interest rates, in the event that Britain chooses to leave in the vote on June 23.

The BOE’s monetary policy committee meets this Thursday and the Bank, which has warned about the economic risks of a Brexit, will release updated growth and inflation forecasts in a quarterly report.

Sterling hit an 11-day low on Friday, as investors worried that a referendum on whether Britain should stay in the European Union was still too close to call, with seven weeks to go.

Sterling had hit a day’s high of $1.4546 after a weaker-than-expected U.S. jobs report showed just 160,000 jobs were added in April, well short of the 202,000 expected. But it later retreated to $1.4422, its weakest since April 25 and down 0.4 percent on the day.

Average hourly earnings were the only bright spot in the employment report, rising 8 cents or 0.3 percent last month.

Most economists reckon leaving the EU would deal a blow to the British economy, with a hefty current account deficit – 7 percent of GDP in the last quarter of last year – leaving it vulnerable to any pull-back in investment flows. Any news that makes a Brexit more likely, therefore, knocks sterling.

For the week, the pound is down 1.2 percent versus the greenback, on track for its first weekly drop in four, having also been hurt by weak purchasing managers’ index (PMI) surveys that showed Britain’s economy slowed in April.

The economy could well be on a shaky road ahead of the Brexit vote in June.

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