Sterling holds near two-week lows but expected to rise in 2020

Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company’s headquarters in Vienna November 16, 2017. — Reuters pic
Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company’s headquarters in Vienna November 16, 2017. — Reuters pic

LONDON, Jan 10 — The pound edged down against the dollar today, holding near two-week lows hit after Bank of England governor Mark Carney signalled a possible rate cut a day earlier.

Carney had said yesterday there could be a “relatively prompt response” from the bank if the current spell of economic weakness persisted.

Some optimism was generated by a survey of recruiters today which showed British employers increased their number of new permanent staff for the first time in a year in December.

On the Brexit front, British lawmakers approved legislation yesterday which will allow Britain to leave the European Union on January 31 with an exit deal, ending more than three years of tumult over the terms of the divorce, although the vote was considered a non-event for markets after Prime Minister Boris Johnson’s landslide election win in December.

The pound was down 0.1 per cent against the US dollar in early London trade at US$1.3059 (RM5.33) holding close to yesterday’s floor atUS$1.3014, the lowest level since December 27. It was up around 0.1 per cent against the euro, at 85.00 pence.

Analysts say that pound is now being kept weak due to uncertainty around Britain’s future trade relationship with the EU after a transition period expires at the end of the year.

Still, the pound is expected to gain more than 3 per cent against the dollar this year, supported by interest rate differentials and hopes for a smooth departure from the European Union, a Reuters poll of nearly 60 forex strategists found today.

The polled analysts also expect that the pound would rise to US$1.32 at the end of January, when Britain is due to leave the European Union.

“With spot trading at around 1.30, we think GBP/USD is a ‘buy’ on a three-six month horizon, though we anticipate a resumption of downside risks in the second-half of the year, towards the end of the Brexit transition window,” BMO’s European head of FX strategy Stephen Gallo said in a client note.

“But we certainly think that the 1.35-1.37 range in the pair is achievable beforehand, in the event of a ‘positive fiscal shock’”.

In the short term, technical analysts highlight support for sterling at the 50-day moving average at 1.3010 which has so far held. But a break below 1.3000 is seen opening the path for sterling to a fall towards 1.2920. — Reuters

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