Sterling fell to a six-week low against a broadly firmer dollar on Friday on growing expectations the US Federal Reserve could soon start to scale back monetary stimulus after recent comments from Fed officials. Analysts expected the pound to stay weak against the dollar, especially given concerns incoming Bank of England head Mark Carney could ease policy when he takes up the post in July. But an improving UK economy could help it rise against the euro.
Sterling fell 0.6 percent at $1.5162, its weakest since April 4, as the dollar extended gains after it hit its highest in nearly three years against a basket of currencies. The pound's next target was the April 4 low of $1.5034. "For sterling there could be some profound selling against the dollar ... in the near term it will be driven by what's going on with the dollar, and $1.50 has to come into view," said Kathleen Brooks, research director at FOREX.com.
Recent signs of improvement in the US economy and speculation the Fed could reduce or end its asset-buying programme, which is typically negative for a currency, have emboldened investors to buy the dollar. Currency markets responded in particular to comments by John Williams on Thursday, the president of the Federal Reserve Bank of San Francisco, who said the Fed could completely exit its easing by the end of the year.
The euro was up 0.1 percent at 84.41 pence, staying above chart support at 83.98 pence, a low reached on April 26 which was its weakest since late January. An improved UK economic outlook, with the Bank of England looking set to keep monetary policy steady for now, could keep the pound firm against the euro as it coincides with increased expectations of another European Central Bank rate cut.
"Sterling is caught up in the recent bout of dollar strength," said Stephen Gallo, European head of FX strategy at BMO. But he said falls were likely to be limited, keeping it above $1.50 while the pound gained against the euro. "We think euro/sterling will go lower on the basis of the macroeconomic divergence between the UK and the euro zone."
Comments
Comments are closed.