Sterling at one-week low falls as doubts build over Brexit

Investor’s attention shifts to whether Mark Carney will stay on beyond next summer

Photograph: iStock

Photograph: iStock

 

The pound sank to a one-week low on Tuesday on rising doubt among investors about the progress of Brexit talks and the future leadership of the Bank of England.

Sterling fell sharply on Monday following barbed comments from European Union chief Brexit negotiator, Michel Barnier, and former foreign secretary Boris Johnson about Britain’s proposals for leaving the EU.

Sentiment was further eroded by manufacturing and construction data underscoring weakness in the economy.

Investor’s attention on Tuesday, however, shifted to the question of whether Bank of England Governor Mark Carney will stay on at the helm of the central bank beyond the summer of next year.

Mr Carney will appear on Tuesday before a regular parliamentary committee and is expected to address speculation that he will extend his tenure beyond a previously agreed departure date of next June.

“The policy continuity that would ensue under Carney extending his term would be supportive for sterling as it would reduce policy uncertainty at a time when the currency is likely to be riddled with other Brexit-related uncertainties,” ING currency strategist Viraj Patel said.

But personnel changes at the BoE are unlikely to have a significant impact on markets at a time when the major driver for the economy and central bank policy is Brexit, he added.

Procrastination

In August the BoE pushed interest rates above their financial crisis lows but signalled it was in no hurry to raise them further as Britain heads for Brexit next year with no clear plan for leaving the European Union.

The front-runner to succeed Mr Carney is widely seen to be Andrew Bailey, the chief executive of Britain’s Financial Conduct Authority.

“This procrastination around one of the UK’s most important policy appointments is unwelcome... at a time when more than anything Britain needs certainty, about who will be overseeing monetary policy into the next decade,” said Michael Hewson, chief market analyst at CMC.

The pound was down 0.4 per cent against the dollar at $1.2815 at 925 GMT, it lowest since August 24th. Against a broadly weak euro it traded flat at 90.19 pence.

A survey showing weaker than expected growth in Britain’s construction sector in August - another sign of the economy wilting in 2018 - piled further pressure on sterling.

The purchasing managers’ index (PMI) dropped to a three-month low of 52.9 last month from July’s 55.8, below all forecasts in a Reuters poll of economists.

The slide follows the weakest manufacturing PMI in more than two years on Monday, but analysts will not have a broad picture of the economy until figures for the much larger services sector are released on Wednesday. – Reuters