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Sterling declines against the Dollar & Euro

• Posted by Shyam Gokani in Uncategorised
• October 17, 2016
• No Comments

Sterling is below $1.22 this morning and weakened against the euro, hurt by rising gilt yields and media reports of disagreements between the Chancellor and his cabinet colleagues over the terms of Britain’s exit from the EU.

The Daily Telegraph said Phillip Hammond could quit his post after he was excluded from government meetings because he criticised the “hard” Brexit stance of Prime Minister Theresa May. Although the Treasury denied that Hammond will quit, it did little to install confidence in the pound.

Sterling fell to $1.2172, having lost over 6 percent in the past two weeks after May raised the spectre of a “hard” Brexit where the government will negotiate for an exit that favours tighter immigration controls over free trade, likely curbing foreign investment needed to fund Britain’s huge current account deficit.

Bank of England deputy governor Ben Broadbent said the weakness in sterling could cause inflation to overshoot its 2 percent target but that tightening monetary policy would have “undesirable consequences”.

That was broadly in line with what Governor Mark Carney told a public meeting on Friday. Carney said he was willing to allow inflation to run “a bit” higher than the central bank’s 2-percent target to help employment and allow Britain’s economy to grow.

Inflation is expected to rise above 2 percent in 2017 because of a sharp fall in the value of the pound – a 16 percent tumble to record lows.

At the same time, the economy is expected to slow as Britain begins the complicated process of leaving the EU and tries to negotiate new trade deals, leaving the economy facing a potentially toxic mix of a tumbling currency, rising bond yields, accelerating inflation and sluggish growth.

This week we will see the Inflation, Wages and Retail Sales data from the UK. This could have an impact on the Sterling value.