Sterling losses continue

  • Posted by Shyam Gokani in Uncategorised
  • October 10, 2016
  • No Comments

Sterling’s trade-weighted index fell to its lowest since early 2009 this morning, extending hefty losses seen last week, on deepening worry about an adverse impact on the British economy from its exit from the European Union.

The currency was slightly calmer than Friday when a “flash-crash” wiped out a tenth of its value in a matter of minutes in Asian trade, but sentiment towards the pound remained gloomy with speculators bets against it at record highs.

Sterling index fell to its lowest since Jan 2009 and down 0.7 percent on the day. The index has lost over 9 percent since the referendum results on June 24 where Britons voted to leave the EU.

Losses accelerated last week on worries about how Britain will exit the EU and about Prime Minister Theresa May’s comments on loose monetary policy, which some saw as a thinly veiled attack on the Bank of England.

Many investors think May’s government is leaning towards a “Hard Brexit”, where Britain gives up full access to the EU’s single market in order to impose maximum control on its borders. Some fear that could hinder trade and constrict the foreign investment needed to fund Britain’s huge current account deficit, one of the biggest in the developed world.

When investors are nervous or cautious about putting money into country’s assets they demand higher premiums for their investments which often can lead to a cheaper or weaker currency.

A few large banks have lowered their forecasts for the pound. HSBC, a leading British bank, said on Friday it forecast the pound to drop to $1.10 and parity against the euro by the end of 2017, citing growing uncertainty from Brexit.

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