Sterling Extends Losses

06 Feb 2018

Published in: The Chamber Patron Group

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Sterling extended losses on Monday to hit one-week lows as new surveys indicating a slowing British economy and negative news around Brexit negotiations sapped investor confidence.

Financial data firm IHS Markit said on Monday growth in the world's sixth-biggest economy looked set to slow to 0.3 percent in the first quarter, down from 0.5 percent in the last three months of 2017.

Britain has ruled out any form of customs union with the European Union after Brexit, according to a source in Prime Minister Theresa May's Downing Street office. With those brewing tensions in the background, British and European Union negotiators this week hold their first formal Brexit talks since the interim deal in December unlocked discussions on their future relationship.

Investors were wary of chasing the currency lower before a policy decision later this week where a repricing of Bank of England interest rate hike expectations - several banks are now calling for a rise to come in the month of May, and for another to come later in the year. Ratings agency S&P Global also said that disorderly Brexit would bring renewed downward pressure to the country's sovereign rating.

The dollar remained near three-year lows on Monday after rebounding at the end of last week as resurgent U.S. wage inflation data failed to quell scepticism among investors about the currency's outlook.

Share markets around the globe slumped on Monday and bond yields rose as investors fear the tightening of US monetary policy may hamper global growth.  Analysts said the impact on the struggling dollar was not so clear. With U.S. interest rates expected to rise three times this year and the American economy growing at a healthy clip, fundamentals indicate a stronger dollar, analysts said. But the currency has failed to gain on economic news that points to tighter monetary policy.

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