Sterling was on track for its worst weekly performance in four months on Friday as the dollar rallied after the US Federal Reserve called time on its monetary stimulus programme. Conversely Mark Carney, who takes over as Bank of England governor next month, could ease UK monetary policy aggressively, if economic data worsens, analysts said.
The pound traded down 0.8 percent on Friday to $1.5384, its lowest level in two weeks, breaking through the key $1.5400 level and taking it well below Monday's four-month peak of $1.5753. On a weekly basis it was last down around 2 percent, its worst performance since late February. The euro was up 0.2 percent at 85.35 pence.
"It does look like the dollar is going to strengthen quite a bit against sterling in coming days," said Adam Myers senior foreign exchange strategist at Credit Agricole, who expects sterling to be around $1.5200-50 by the end of next week. "Even as the Fed looks like they are getting closer to reducing stimulus the FX markets believe that Carney will deliver further stimulus and that contrast is what is prompting many investors to take speculative short positions in sterling."
Sterling rose on Thursday morning after data showed British retail sales rose much more than forecast in May. But a weaker than expected industry survey later in the day served as a reminder that a UK economic recovery is not assured. "Sterling, against the dollar at least, will remain a sell on rallies," said Richard Wiltshire, chief foreign exchange broker at ETX Capital, adding that he expected the dollar to "perform strongly in the next few months". On Wednesday minutes showed a third of the BoE's Monetary Policy Committee, including outgoing governor Mervyn King, felt more quantitative easing was needed due to weak wage growth and risks to the euro zone economy.
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