Sterling hits 3-1/2-month low

Sterling slipped to its weakest in 3-1/2 months against a trade-weighted basket of currencies on Thursday as investors bet the Bank of England would wait until the second half of next year to raise interest rates. The BoE is expected to come second only to the US Federal Reserve among major central banks in raising rates from their current historic lows. But with UK inflation stuck at zero, and with the Fed keeping rates on hold last week and cutting its growth forecasts, the BoE is in no hurry to proceed.
BOE Deputy Governor Ben Broadbent told Reuters he has not been on the brink of voting for higher interest rates, unlike some of his colleagues, and that labour costs in Britain need to grow faster to get inflation back to the bank's target. Earlier in the week, another deputy governor, Jon Cunliffe, said price pressures were not building up in Britain but the next interest rate move is still likely to be up.
"The market is far more interested in the ECB and the Federal Reserve right now for the BoE commentators to really take centre-stage," said Rabobank FX strategist Jane Foley. "Sterling is playing second fiddle at the moment." "The market is essentially happy with the message that (BoE Governor) Carney has given several times, which is that towards the end of the year, the factors that will influence the interest rate call will come more sharply into focus."
The main focus in currency markets on Thursday was the Norwegian crown. It tumbled after Norway's central bank surprised markets by cutting interest rates for the second time in four months. Sterling gained 2 percent against the currency to a three-week high of 12.9154 crowns. Against the euro, the pound shed almost 1 percent on the day to trade at a one-month low of 74.11 pence, while it retreated 0.1 percent against the dollar to $1.5222. Those losses took the BoE's trade-weighted sterling index to its weakest point since June 91.2. "Unless we manage to recover back through the $1.5330 area there is a real risk we could well see a return to the $1.5000 area," wrote CMC Markets strategist Michael Hewson.