Sterling slips to 10-month lows against euro

Sterling fell to a fresh 10-month low against the euro on Friday as investors added bearish bets against the British currency on concerns the economy may be struggling to gain momentum. "Liquidity is usually quite thin in the summer months but that said this is a continuation of the trend in recent weeks that the British economy isn't doing all that well and that is weighing on the currency," said Jane Foley, head of FX strategy at Rabobank in London.
Sterling fell 0.2 percent to 90.92 pence against the euro, its lowest level since October 2016. It has fallen for two consecutive weeks and has weakened nearly 9 percent against the euro since early May. Morgan Stanley strategists are predicting euro parity with the pound in the first quarter of 2018.
The pound has lost more than 13 percent in trade-weighted terms since the June 2016 vote to leave the European Union, but Britain's trade deficit with the rest of the world remains huge. Against the dollar, sterling held near a three-week low and was broadly steady at $1.2980, a shade above a three-week low of $1.2952 hit in the previous session. It is on track to post its biggest two-week decline against the dollar since March 2017.
"The July bounce in sterling was on some expectations that the Bank of England (would) increase interest rates at its last policy meeting, but with fundamentals looking increasingly downbeat for the economy, it seems to be a path of gradual weakness," said Viraj Patel, an FX strategist at ING in London.
As the economic picture has become cloudier, money market pricing for a rise in UK interest rates this year has collapsed and is the main driver of sterling selling since the start of August, analysts say. Data this week showed falling car production and a slide in construction, which bode poorly for future months after a more general slowdown in the first half of 2017. Inflation data next week will be the big driver for sterling. Data last month showed an unexpected slowdown in price pressures for the first time since October.