It's less than a week after Mark Carney said early 2016 remains a possibility for raising interest rates, and yet the pound is suffering its longest slump in a year.
Traders are paying little heed to the Bank of England governor’s suggestion that Britain can shrug off the effects of China’s stock-market meltdown and are focusing on signs the domestic economy is losing enough momentum for a rate increase to be delayed.
The latest evidence came Thursday. A report showed UK services growth unexpectedly slowed in August, helping push down the pound for an eighth day to a three-month low versus the dollar.
Britain's currency climbed against the euro after European Central Bank President Mario Draghi tweaked his quantitative-easing programme to allow it to buy more debt.
“The market is really closely analysing the macro-economic data as a gauge to decipher when, if any Bank of England rate increases will come,” said Neil Jones, head of hedge-fund sales at Mizuho Bank in London.
Britain’s economic slowdown “could delay it,” he said. “That’s already something on peoples’ minds because of global developments, so the pound is being sold off.”
The pound fell 0.4 per cent to $1.5232 as of late afternoon in its longest run of declines since October, and dropped to as low as $1.5219, the weakest since June 5th. Sterling jumped 0.7 per cent to 72.90 pence per euro.
Markit Economics said its Purchasing Managers Index of services fell to 55.6 last month, from 57.4 in July and short of the 57.7 figure forecast by economists in a Bloomberg survey. A reading above 50 signals expansion.
The slowdown in a sector that accounts for about three quarters of Britain’s economy comes as BOE officials prepare to decide on interest rates on September 10th.
Data earlier this week showed U.K. construction and manufacturing also trailed economists’ forecasts, which may reduce the chance of a boost to official borrowing costs.
Speaking in Jackson Hole, Wyoming, Carney said last week that the BOE can ignore the deflationary impact of lower oil prices and the slowdown in China.
- Bloomberg
