Pound to rebound on hopes for amicable divorce, rate hike

Sterling is likely to gain, and by the time Britain leaves the European Union next March it is expected to have recouped much of the losses since the June 2016 decision to leave the bloc, according to a Reuters poll.

However, the pound is unlikely to re-test the levels above $1.43 it traded at earlier this year, when the Bank of England was expected to raise interest rates in May. Instead, it left rates unchanged.

The currency is down around 10 percent since Britons voted to leave the EU, trading at $1.34 on Wednesday, but a lot of those losses will be wiped out on expectations for rate hikes and a good divorce deal with the EU.

In a month’s time, sterling will be at $1.33, in six months at $1.35 and in a year it will have jumped to $1.41, the June 1-6 poll of over 50 foreign exchange strategists predicted.

Better-than-expected business surveys this month have stoked expectations the Bank will raise interest rates by 25 basis points to 0.75 percent in August, as was predicted in a May 23 poll [GB/PMIS][ECILT/GB] .

Britain’s economy almost flat-lined at the start of the year, at least in part due to heavy snow, and the Bank will be want to see evidence that downturn was only temporary before it raises borrowing costs.

BoE rate-setter Silvana Tenreyro said on Monday much of the weakness in Britain’s economy would probably prove temporary, but the timing of when rates would next go up remained an open question,
Uncertainty about the relationship Britain can agree with the EU after Brexit continues to cloud the currency’s outlook. Forecasts for the 12-month outlook ranged from $1.23 to $1.54.

Sterling jumps after services data, but Brexit still muddies outlook

Sterling jumped on Tuesday after a survey showed companies in Britain’s dominant services sector grew more quickly than expected in May after a winter slump in early 2018.

But the mood concerning the pound’s outlook remained more downbeat due to uncertainty surrounding Brexit and the Bank of England’s path for monetary tightening.

After slumping 3.43 percent against a resurgent dollar in May, sterling has started June on the front foot, buoyed by data showing signs of a possible strengthening of the British economy after a sluggish first quarter.

The IHS Markit/CIPS services purchasing managers’ index (PMI) rose to a three-month high in May, better than forecast in a Reuters poll of economists.

That pushed sterling up against the dollar. It traded up half a percent on the day after the data at $1.3384 and was headed for its biggest daily rise in seven weeks. GBP=D3

Against the euro the pound also rose 0.4 percent to 87.43 pence. EURGBP=D3

Tuesday’s business survey — the third in as many days to show signs of renewed strength in the economy — could increase the chances of a Bank of England interest rate hike later this year.

Investors are pricing in a roughly 40 percent chance of the BoE raising borrowing costs in August - the next time it updates its economic forecasts.

Sterling falls to lowest against dollar since November

European Stock Markets

The pound fell to a six-month low against a rallying dollar on Tuesday, while it held its own against a euro dragged down by concerns about a deepening political crisis in Italy. 

Sterling has slumped against the dollar since mid-April as expectations of a Bank of England interest rate rise recede and the economy shows signs of prolonged weakness.

Renewed concerns about whether Britain can secure the Brexit deal it wants have also impacted the currency.

Against the dollar, the pound slid as much as 0.7 percent to $1.3205, its weakest since mid-November. The British currency, previously one of the best performers in 2018, is now down more than 2 percent versus the dollar so far this year.

Investors are only pricing in a one-in-three chance of the Bank of England raising borrowing costs in August, the next time it updates its economic forecasts.

David Madden, an analyst at CMC Markets, said the pound remained “in its downward trend” and pointed to $1.32 as a key target.

Versus the euro, sterling has performed much better, and at GMT 1515 on Tuesday traded up 0.3 percent at 87.12 pence per euro.

Worries about divisions within the British government about whether it wants to remain in a customs union with the European Union after it leaves the EU in March 2019 have undermined sentiment towards the pound ahead of an EU summit in June.

However, the euro’s rapid descent - caused by investors buying into dollars and concerns about political uncertainty in Italy - have underpinned the pound and it remains up versus the single currency in 2018.

Pound slides to lowest since November against rallying dollar

European Stock Markets

The pound fell to a six-month low against a rallying dollar on Tuesday, while it held its own against a euro dragged down by concerns about a deepening political crisis in Italy. 

Sterling has slumped against the dollar since mid-April as expectations of a Bank of England interest rate rise recede, the economy shows signs of weakness and worries about whether Britain can secure the Brexit deal it wants reemerge.

Against the dollar, the pound slid as much as 0.7 percent to $1.3205, its weakest since mid-November. The British currency, previously one of the best performers in 2018, is now down more than 2 percent versus the dollar so far this year.

David Madden, an analyst at CMC Markets, said the pound remained “in its downward trend” and pointed to $1.32 as a key target.

Versus the euro, sterling has performed much better, and on Tuesday traded flat at 87.31 pence per euro.

Worries about divisions within the British government about whether it wants to remain in a customs union with Europe after Brexit have hit sentiment towards the pound ahead of crucial EU summit in June.

However, the euro’s rapid descent - caused by investors buying into dollars and concerns about political uncertainty in Italy - have underpinned the pound and it remains up versus the single currency in 2018.

Sterling trades near 2018 low on Brexit uncertainty

European Stock Markets

The pound traded near a five-month low of $1.33 on Friday, weighed down by worries over Brexit and signs of sustained weakness in Britain’s economy. 

Sterling had been one of the best-performing currencies in 2018, but weak economic data and a recent surge in the dollar have erased all of its gains for this year.

Markets have radically scaled back expectations for when and how much the Bank of England will raise interest rates as economic growth slows. Data on Friday showed GDP grew just 0.1 percent in the first quarter, keeping the pound under pressure.

Barclays, in a note to clients, cut its growth forecast for 2018 to 1.3 percent from 1.4 percent.

At 1430 GMT, the pound was down 0.5 percent at $1.3318 as the dollar gained broadly.

Weak construction and retail data mean investors are now only pricing in a one-in-three chance of the BoE raising borrowing costs in August, the next time it updates its economic forecasts.

Meanwhile, concerns are growing about the sort of relationship Britain can agree with the EU before it exits the bloc in March 2019 and that is also impacting sterling.

BoE Governor Mark Carney said on Thursday the central bank could pump more stimulus into

Britain’s economy if this year’s Brexit negotiations resulted in a bad deal.

He said two days earlier that the Brexit vote has cost each UK household 900 pounds .

There is a one-in-five chance of a disorderly Brexit.

Analysts at CMC Markets and Commerzbank, in notes to clients, predicted the pound would fall toward $1.3300 in the short term.

Sterling edged below day's high with persistent concerns over Brexit

European Stock Markets

Sterling edged below the day’s highs on Thursday after upbeat British retail sales data, with traders wary of pushing the currency too much further given persistent concerns over Brexit negotiations. 

The British currency extended gains to rise half a percent on the day at $1.3419 compared to $1.3385 earlier as retail sales volumes rose by 1.6 percent from March, well above the median forecast for a monthly 0.7 percent increase in a Reuters poll of economists.

But it subsequently trimmed early gains to stand 0.2 percent up on the day at $1.3371.

The currency’s gains on Thursday marked a reversal of fortunes from Wednesday when it fell to its lowest levels since mid-December on a slower than expected pick up in inflation.


Sterling’s gains were also magnified by the dollar’s weakness which was down a quarter of a percent against a basket of its rivals after U.S. President Donald Trump called off his planned June 12 summit meeting with North Korean leader Kim Jong Un.

However, on a trade-weighted basis, sterling was trading near its lowest levels in two weeks at 78.67.

Britain will end its implementation period with the European Union after Brexit in December 2020, a government source said on Thursday, denying a media report that Prime Minister Theresa May was seeking a new transition until 2023.


Market implied expectations for the next rate hike remained unchanged with bond markets pricing in a move by the end of the year with a 33 percent probability of a rate hike by August.

FTSE 100 edges lower as pound climbs after strong retail sales data

European Stock Markets

U.K. stocks tipped lower on Thursday after the pound rallied on the back of better-than-expected retail sales data that brought an August Bank of England interest rate rise back into play.

What are markets doing?
The FTSE 100 index UKX, -0.05%  fell 0.1% to 7,784.19, adding to a 1.1% loss from Wednesday.

The pound GBPUSD, +0.4120%  climbed to $1.3396 from $1.3348 late Wednesday in New York.

Sterling fell to a fresh 2018 low on Wednesday, after official figures showed U.K. inflation unexpectedly fell in April, seen as dampening expectations for a Bank of England interest rate rise in the summer.

What is driving the market?

However on Thursday, the retail sales data painted a more upbeat picture of the U.K. economy and suggested the economy may be able to stomach a rate hike this summer.

Retail sales rose 1.6% month-on-month in April, beating forecasts of a 0.2% rise, recovering after a spell of cold weather.

Investors in the U.K. are watching data releases closely, after BOE Governor Mark Carney made clear recently that the central bank’s next policy move depends on an improvement in British economic health.

More broadly, traders were still digesting the minutes from the U.S. Federal Reserve’s May 1-2 meeting, which were released late Wednesday.

The minutes suggest the U.S. central bank is on track to hike interest rates in June and is keeping calm about the inflation outlook.

Sterling hits one-week high but trims gains

European Stock Markets

Sterling trimmed earlier gains after hitting a one-week high against a broadly firm euro on Tuesday as a top central bank official’s upbeat note on the outlook for future interest rate increases was met by some market scepticism.

Currency investors were burned by the Bank of England’s decision to keep interest rates on hold last month after signalling a rate hike was on the cards until a few weeks earlier.

That has left funds wary of pushing sterling sharply either way without any firm data to back those moves.

In late afternoon trading, sterling GBP=D3 gave back most of its earlier gains and was broadly flat on the day at $1.3432.

BoE policymaker Gertjan Vlieghe told the Treasury Committee of parliament that policy rates are set to rise 25 to 50 basis points every year over three years, a comment initially interpreted by markets as supportive for the pound GBP=D3.

Against the dollar, sterling first extended gains and rose 0.4 percent to the day’s highs at $1.3492.

It also climbed 0.2 percent to a one-week high against the euro EURGBP=D3 at 87.60 pence but later trimmed some gains.

Interest rate markets were broadly unchanged by the relatively optimistic comments, with the probability of another quarter point rate hike holding at around 90 percent by the end of the year, the same levels as earlier this week.

Gains were capped before important data on the British economy due out this week, including inflation on Wednesday and the gross domestic product figure on Friday.

These will be scrutinised by investors to gauge whether the BoE might tighten monetary policy as early as August.

Tuesday’s rise in the pound came after concerns over the post-divorce relationship Britain negotiates with the European Union weighed heavily on the currency last week.

Adding to the uncertainty, lawmakers from Prime Minister Theresa May’s governing Conservative Party are reported to be preparing for a snap Autumn election amid fears that the Brexit deadlock will become insurmountable.

But the biggest reason for sterling’s recent fall has been a drastic shift in expectations of when the BoE will raise rates.

Sterling slumps to its lowest since December as dollar strengthens

European Stock Markets

Sterling slumped to its lowest since December on Monday as the dollar surged and investors prepared for data this week that could determine whether the Bank of England raises interest rates in 2018. 

A broad rally by the dollar and dwindling expectations that interest rates will rise have caused what had been one of the best-performing major currencies to give up all its 2018 gains.

Sterling slumped half a percent on Monday and fell below $1.34 for the first time since December , before trimming some of its losses.

The currency was headed for its biggest daily loss in three weeks as the dollar rose broadly on reports that the United States was putting its trade war with China “on hold”.

The pound also fell versus the euro, sliding 0.2 percent to 87.64 pence.

Important data on the British economy is due out this week including inflation on Wednesday and gross domestic product on Friday.

The figures will be scrutinised by investors to gauge whether the BoE might tighten monetary policy as early as August.

Risks around the sort of post-divorce relationship Britain can agree with the EU weighed heavily on the pound last week. But the biggest reason for sterling’s fall has been a drastic shift in market expectations of when the BoE will raise rates.

Recent weak economic data mean markets are now not even pricing in a full 25-basis-point hike by the end of 2018. They had expected two 25 bp rises this year.

Concerns over Brexit also continue to dog the pound.

Scottish First Minister Nicola Sturgeon said on Sunday she would consider another vote on independence for Scotland when the British government offers some certainty over Brexit.

Adding to the political uncertainty, lawmakers from Prime Minister Theresa May’s governing Conservative Party reportedly are bracing themselves for a snap autumn parliamentary election amid fears that the Brexit deadlock will become insurmountable.

Analysts at CMC Markets and Commerzbank, in notes to clients, predicted the pound would fall towards the $1.3300 level in the short term.

Pound falls to five-month lows as dollar soars

European Stock Markets

The pound fell to a five-month low on Monday as the dollar surged and investors prepared for data that could determine whether the Bank of England raises interest rates this year.

A broad rally by the dollar and dwindling expectations that interest rates will rise have caused what had been one of the best-performing major currencies to give up all its 2018 gains.

Sterling slumped half a percent to $1.3412, its lowest since Dec. 28, as the dollar soared on reports the U.S was putting its trade war with China “on hold”.

Important data on the British economy due this week, including inflation and gross domestic product, will be scrutinised by investors to gauge whether the BoE might tighten monetary policy as early as August.


Risks around the sort of post-divorce relationship Britain can agree with the EU weighed on the pound last week. But the biggest reason for sterling’s fall has been a drastic shift in market expectations of when the BoE will raise rates.

Recent weak economic data mean markets are now not even pricing in a full 25-basis-point hike by the end of 2018. They had expected two 25 bp rises this year.


Concerns over Brexit also continue to dog the pound.

Scottish First Minister Nicola Sturgeon said on Sunday she would consider another vote on independence for Scotland when the British government offers some certainty over Brexit.

Adding to the political uncertainty, Tory MPs reportedly are bracing themselves for a snap general election this autumn amid fears the Brexit deadlock will become insurmountable.

In notes to clients, analysts at CMC Markets and Commerzbank both predicted the pound would fall toward the $1.3300 level in the short term.

Sterling rallies vs dollar, euro on EU customs union report

European Stock Markets

Sterling briefly rallied more than half a percent versus the dollar on Thursday after a media report that Britain would tell Brussels it was prepared to stay in the European Union’s customs union beyond a transitional arrangement. 

British cabinet ministers are deadlocked over a future deal with the block and the Telegraph newspaper said Britain would tell Brussels it was prepared to stay in the customs union beyond 2021, sending the pound to a two-day high.

Sterling later relinquished most of its gains however. Prime Minister Theresa May denied she was “climbing down” from her position and said Britain would be leaving the EU customs union as she has previously outlined.

At GMT 0820 sterling was up 0.2 percent at $1.3525 and traded up 0.1 percent versus the euro at 87.37 pence, close to a three-week high of 87.15 hit earlier in the session.

The pound’s jump suggests the currency remains vulnerable to Brexit negotiations that have dominated British politics since a 2016 referendum, even as Britain’s economy has shown signs of strengthening.

Riechelt said that the risk of a hard brexit remained, though, and that the pound could face downward pressure because the EU would likely meet the proposal with scepticism.

Britain is due to leave the EU in March next year although it has secured a transitional arrangement to keep its trade ties with the bloc unchanged until the end of 2020, as long as a permanent deal can also be reached in the coming months.

Cabinet ministers have discussed keeping the UK tied to EU customs rules for longer as a way of avoiding a hard Irish border.

Other analysts downplayed the importance of the customs union discussions for the pound.

Sterling drops back towards 2018 lows on Brexit worries

European Stock Markets

Sterling fell on Wednesday back towards its lowest point of the year against the dollar amid fresh worries about Britain’s Brexit negotiations and relatively modest UK wage growth.

The British government said on Tuesday it would publish detailed plans for its future relationship with the European Union next month in an attempt to break the deadlock in Brexit negotiations.

Divisions within the government about what the relationship should look like, and repeated complaints from EU officials that Britain has not been clear on what it wants, has left investors convinced Brexit talks remain a real risk for the pound less than a year before Britain is due to leave the bloc.
 On Tuesday, UK data showed British employers hired many more workers than expected in early 2018, a tentative sign that the economy’s weak start to the year may be temporary.

However, wage growth data remained mixed, with annual growth in earnings, excluding bonuses, at 2.9 percent in the three months to March, as expected in the Reuters poll.

Sterling fell 0.1 percent to $1.3490, not far from the 2018 low reached on Tuesday of $1.3452.

A rally in the dollar and sliding expectations for British interest rate rises have caused what had been one of the best performing major currencies to give up all its 2018 gains.

Versus the euro, the pound declined 0.1 percent to 87.735 pence per euro.

Sterling edges up against dollar; after UK employment jump

European Stock Markets

Sterling recovers against the dollar on Tuesday after data showed UK employment jumped although wage growth has yet to rise sharply, a development analysts said was unlikely to alter the immediate outlook for Bank of England interest rate rises.

Traders watched Tuesday’s unemployment and wages data for signs of whether inflation is feeding through to higher wage growth, a likely prerequisite to an interest rate hike.

The data showed annual growth in earnings, excluding bonuses, edged up to 2.9 percent in the three months to March, as anticipated in a Reuters poll, after a 2.8 percent rise in February.

The BoE held interest rates steady last week and cut its growth projections because of weak economic data, sending sterling to a four-month low against the dollar.

Market expectations of a rate raise in August are currently close to 50 percent compared with nearly 60 percent at the start of last week.


Sterling had outperformed other major currencies this year but weak data caused partly by bad weather has seen BoE Governor Mark Carney express caution over the state of the UK economy and the British currency has fallen.

The pound rose 0.2 percent on the data to trade flat at $1.3545. It also traded flat versus the euro at 88.01 after weakening before the data was released.

Sterling headed for fourth successive weekly decline after BoE holds rates

European Stock Markets

Sterling on Friday headed for its fourth successive weekly decline versus the dollar, in what would be a first for the currency since 2015, after the Bank of England held rates and cut its economic growth projections. 

The pound fell sharply after the BoE on Thursday held interest rates steady as expected but cut its growth and inflation projections for this year and next.

The decision bred scepticism among investors over whether the central bank would hike rates at all this year after weeks of declines caused by weaker-than-expected economic data that was partly blamed on bad weather.

Sterling has tumbled to $1.35 in recent weeks from its post-Brexit vote highs of close to $1.44 and erased its gains against the dollar for the year.

The pound recovered somewhat on Thursday after Bank of England Governor Mark Carney told the BBC that he expected a rate rise over the course of the next year if there were no shocks to the economy.

On Friday the currency rose 0.1 percent versus the dollar at $1.3533 and increased 0.1 percent against the euro at 88.090 pence.

Some analysts criticised Mark Carney for the decision to hold rates and for a month earlier making comments that the market perceived as a signal for a near-certain May rate hike.

Carney told reporters on Thursday the bank’s earlier guidance on tighter policy had been conditioned on February inflation projections but the economy had not fulfilled those conditions.

But other analysts said that doubts over the BoE’s message would fade, especially if data in the next months showed the British economy gaining momentum.

Sterling steadies before BoE rate decision

European Stock Markets

The pound held steady on Thursday near four-month lows as traders shrugged off data showing industrial output barely rose in March and readied for a Bank of England policy decision expected to keep interest rates on hold. 

Sterling has tumbled in recent weeks from its post-Brexit vote highs of close to $1.44 to below $1.35, erasing its gains against the dollar for the year as investors unwound bets on a rate increase and

British economic data came in worse than expected.

Data published on Thursday showed industrial output inched up by 0.1 percent month-on-month in March, the same pace as in February and slightly below the consensus for growth of 0.2 percent in a Reuters poll of economists.

That confirms the view of a British economy struggling to find momentum during a difficult start to the year.

Almost all analysts and economists expect the BoE to leave rates unchanged when it announces its decision at 1100 GMT.

The pound slipped 0.1 percent to $1.3538 versus the dollar, unchanged from before the data was released.

It fell 0.2 percent to 87.670 pence per euro against a broadly stronger single currency.

RBC chief currency strategist Adam Cole noted that forwards markets still attached a close to 100 percent probability of a rate hike at some point this year.

The language in the BoE’s commentary on Thursday’s decision was likely to signal “that a rate hike at some point this year remains on the table.”

Sterling languishes at near four-month low as it waits BoE hike decision

European Stock Markets

The British pound languished near a four-month low on Wednesday as the dollar rallied and traders sold sterling the day before a Bank of England meeting where interest rates are expected to be kept on hold.

UK economic data have taken a turn for the worse in recent weeks, causing traders to almost discount the possibility of an interest rate hike on Thursday.

In addition, worries about conflict within the British government over what its relationship with the European Union should look like after Brexit have hurt sterling.

Traders will scrutinise Thursday’s decision for any indication of whether a rate hike is still likely this year.

A narrow vote split among the nine-member Monetary Policy Committee, led by Governor Mark Carney, could prepare markets for a hike in August.

But analysts said the BoE could find it challenging to explain its future approach to a market that has within a month cut its expectation of a May hike from 90 to around 10 percent.

However, analysts at ING said in a note that the pound’s fall in recent weeks looked overcooked, and that they remained bullish for the medium-term.

The pound was down 0.2 percent on Wednesday at $1.3520, close to Tuesday’s lows — its weakest since Jan. 11.

Sterling is at risk of losing its status as one of the best performing G10 currencies this year, partly because investors have recently started betting on the dollar rising on the strength of higher interest rates.

Data released late last week showed investors had cut their net long positions in the pound over the past fortnight by the biggest amount since March 2017, although net long positions remain near a four-year high.

Tensions within Britain’s governing Conservative Party over how to agree terms of exit from the European Union have also re-emerged as a political risk for the pound.

Foreign Secretary Boris Johnson described as “crazy” a proposed customs partnership that is believed to be Prime Minister Theresa May’s preferred option for relations with the EU after Britain leaves the bloc.

Against the euro, sterling gained 0.1 percent to 87.510 pence as the stronger dollar pulled the single currency down across the board.

Sterling slides as investors trim their pound holdings

European Stock Markets

Sterling slipped on Tuesday as investors continued to trim their pound holdings before a Bank of England meeting on Thursday, when the central bank is expected to keep interest rates on hold, and as worries about Brexit negotiations resurface. 

The pound, which has fallen heavily in recent weeks on expectations the BoE would not, as earlier believed, tighten monetary policy because of a relatively weak economy, fell 0.4 percent to $1.3503 versus the dollar.

Sterling is off the low of $1.3487 it hit on Friday, which had erased all of the 2018 gains for what had been one of the best performing G10 currencies, but downward selling pressure remains.

Positioning data released late last week shows investors have cut their net long positions in the pound over the past fortnight by the biggest amount since March 2017, although net long positions remain near a four-year high.

David Madden, analyst at CMC Markets, said the collapse in expectations for a BoE hike when it meets on Thursday, from a 80 or 90 percent chance a month ago to around 10 percent today, was the primary reason for sterling’s weakness.


Against the euro, sterling fell 0.1 percent to 88.065 pence.

Tensions within Britain’s governing Conservative party over how to agree terms of exit from the European Union have also re-emerged as a key political risk for the pound.

Prime Minister Theresa May faces a tough battle as her party attempts to steer flagship legislation through Britain’s upper house of parliament.

Her foreign minister, Boris Johnson, has described as “crazy” a proposed customs partnership that is believed to be May’s preferred option for relations with the EU after Britain leaves the bloc, underlining deep divisions within her top team about future ties with the EU.

ING analysts said in a note that while the focus would be on the passage of Brexit legislation, sterling against the euro remained steady for now.

Sterling slips to five-week lows with investors wary about British currency outlook

European Stock Markets

Sterling slipped to a five-week low on Thursday as investors grew wary about the outlook for the British currency before a central bank meeting next month and the dollar consolidated gains after a sharp rally this week. 

The British currency edged 0.1 percent lower at $1.3915, taking its losses so far this month to more than half a percent. While the magnitude of the losses are not big, sterling’s weakness in April is a concern because historically it has proved to be a strong seasonal factor for the currency.

The release will be the last key data issued before the Bank of England’s Monetary Policy Committee meeting early next month, and markets are split over whether the central bank will raise interest rates after the central bank chief dampened expectations of a hike.


Governor Mark Carney dented confidence that a rate hike would happen when he said last week that Britain’s economic data was “mixed” and that there were several other MPC meetings later this year.
Market expectations for a rate hike have slipped back to a more uncertain 50 percent from an almost certain 80 percent a couple of weeks ago, according to swap markets.

Against the euro, which some analysts say is currently a better gauge of demand for pounds given there has been considerable dollar-specific news this week, sterling weakened 0.2 percent to 87.45 pence per euro.

The dollar settled at 2-1/2 month highs against the Japanese yen on Thursday as a rise in benchmark 10-year U.S. Treasury yields above the 3 percent line this week rattled currency bears.

Sterling falls to five-week low on dollar rebound, Brexit nerves

European Stock Markets

Sterling fell on Tuesday to its lowest since mid-March, its sixth consecutive daily fall, as the dollar rebounded and investors worried about the performance of the British economy.

April has historically proved to be supportive for the pound because of a seasonal rise in capital inflows into Britain from foreign companies paying UK shareholders dividends.

But last week, sterling fell almost 1.7 percent on weaker-than-expected data and cautious comments from Bank of England Governor Mark Carney that slashed market expectations for a May rate hike.

The pound continued to languish on Tuesday and fell 0.1 percent to as low as $1.3919, its lowest since March 19, in part because of a broadly stronger dollar, analysts said.

Against the euro, the pound recovered and rose 0.1 percent to 87.505 pence.

Analysts said they would watch gross domestic product figures due later in the week for signs of how the economy was holding up and whether it pointed to a BoE ready to hike rates.

A resurfacing of worries about Brexit also sapped at the pound, which has been one of the best performing major currencies in 2018.

Britain’s upper house of parliament handed the government its third defeat over Brexit in less than a week on Monday, voting down plans not to retain EU rights in national law before Britain leaves the bloc.

The cross-party vote was technical and non-binding but shows the deep divisions over Brexit across the Houses of Parliament and adds to speculation that Prime Minister Theresa May’s leadership could come under threat.

“There has been a clear pick-up in news reports over the difficulty the government faces in following through on their plans to leave the EU customs union,” MUFG economists said in a note, adding that the impact on the pound so far appeared limited.

The market is now pricing in a less than 50 percent chance of a rate hike at a May 10 BoE meeting, down from more than 80 percent a fortnight ago.

Sterling stuck at two-week low as investors cautious over May rate hike

European Stock Markets

Sterling slipped to a two-week low against the dollar on Monday as investors questioned whether the Bank of England would raise interest rates in May following weaker-than-expected economic data and cautious comments from governor Mark Carney. 

The pound has been one of the best performing major currencies in 2018 and last week surged to its highest level since the Brexit referendum in June 2016.

But weaker-than-expected wage growth and inflation, and comments by Carney that the data was “mixed” hit the currency hard, sending it down almost 1.7 percent for the week as investors rushed to price in the possibility the BoE could delay raising rates until later in the year.

Analysts on Monday said they would watch gross domestic product figures due later in the week for signs of how the economy was holding up and whether it pointed to a BoE ready to hike rates.

But he cautioned that politics could impact sterling this week if a cross-party and non-binding technical vote on Brexit on Thursday threatened Prime Minister Theresa May’s leadership.

The pound traded flat at $1.3997, after earlier hitting a 2-1/2 week low of $1.3984, as broad dollar strength kept the pound under pressure.

Against the euro, the pound recovered and rose 0.3 percent to 87.515 pence.

A seasonal rise in capital inflows into Britain from foreign companies paying UK shareholders dividends has boosted sterling during April in recent years.

Economists, almost all of whom had predicted the BoE would act in May before Carney’s Thursday interview, believe the central bank’s vote on rates next month will now be very close.

Berenberg economists said that because of an acceleration in nominal wages and above-trend real GDP growth they expected four 25 basis point hikes over the next two years, with two increases each in 2018 and 2019.