Sterling falls on doubts over Bank of England rate rise

LONDON: The pound fell to an 11-day low versus the euro on Wednesday as traders positioned for a speech by the Bank of England's governor, hoping for further clues as to whether the central bank will raise interest rates this year.

Investors are pondering whether a rate hike is still likely this summer after an incoming Bank of England policymaker on Tuesday expressed caution over the impact of Brexit on Britain's economy.

With its governor Mark Carney due to speak at 1000 GMT, sterling has been impacted recently by contrasting signals from policymakers over whether the economy is performing well enough to justify raising rates for only the second time since the 2008-09 financial crisis.

The pound fell below $1.32 in early trading on Wednesday and at 0845 GMT was down 0.2 percent on the day. Against the euro it fell 0.1 percent to trade at 88.17 pence.

The British currency enjoyed a bounce off seven-month lows last week after a BoE meeting raised expectations of a rate rise in the coming months.

But on Tuesday, sterling fell half a percent when economics professor John Haskel, who replaces a policymaker who has called for higher interest rates, said he was wary of slack in the labour market.

Markets still see more than a 50 percent likelihood of the BoE raising rates by 25 basis points in August and around a 90 percent chance of an increase by the end of 2018.

But analysts said that the window for a hike could close after August when hawkish policy-maker Ian McCafferty is replaced by Haskel and Britain prepares to exit the European Union.

"Sterling is likely to remain a candidate for sudden exchange rate moves as a result of news flow on Brexit and the BoE," Antje Praefcke, an analyst at Commerzbank, wrote in a note to clients.

Praefcke said traders would scrutinise Carney's speech for insights into how he views a vote for a rate rise this month by the bank's chief economist.

Sterling traders are also remaining cautious before a European Union summit this week at which Britain is hoping to make progress in securing a favourable Brexit deal with the EU.