Sterling falls further

Sterling fell this morning, edging back towards last week’s 31-year low against the dollar on expectations that the Bank of England will ease monetary policy in response to Britain’s shock vote to leave the European Union.

The BoE, which meets on Thursday, expects the economy to suffer a material slowdown because of the uncertainty caused by the Brexit vote. Chances of the Bank cutting rates this week have jumped to 74 percent, from 11 percent just before the result of the June 23 referendum was announced.

The BoE has kept its main interest rate at 0.5 percent for nearly 90 months.

Apart from looking for more action from the BoE, traders will comb the minutes of the monetary policy committee meeting for any remarks offering clues on how the Bank’s response to the Brexit fallout will pan out.

We expect the BoE to cut rates by 25 basis points on Thursday, which should keep sterling weaker. There are clear signs that the economy needs a boost.

According to three surveys released today, British consumer spending fell last month, the business outlook darkened by the most in four years and economic activity in London slowed sharply.

In addition, a survey of consumer morale by market research company GfK on Friday showed one of its biggest falls in more than 20 years.

The data dump contributed to a glum outlook for the currency.

A number of banks are forecasting a fall to the low $1.20s in the coming months and others predict eventual parity with the euro.


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