LONDON (Reuters) - Sterling slipped to trade around $1.30 on Thursday, on lingering expectations that the Bank of England might further ease monetary policy in coming months.
Those expectations got a boost when outgoing Bank of England Deputy Governor Minouche Shafik said a rate cut in 2016 would hinge on data, but she would rather act pre-emptively.
Sterling was a tad weaker at $1.3005, having struck a five-week low of $1.2915 on Sept. 23, its lowest since mid-August. The euro was slightly higher at 86.355 pence.
“We continue to see sterling as a vulnerable currency and expect further downside for the pound against both the dollar and the euro in the coming months,” Rabobank senior currency strategist Jane Foley said.
“We look for euro/sterling to move towards 88 pence by the middle of 2017 and sterling/dollar moving to $1.25 in this time frame.”
Investors worry that an exit from Europe’s single market, triggered by the June vote to leave the EU, will drag Britain into a recession and blow out its ballooning current account deficit, already among the highest in the developed world at about 5 percent of gross domestic product.
A wider current account deficit tends to lead to a lower currency.
On Friday, Britain will release second-quarter current account deficit figures and forecasts are for a slight narrowing. But analysts expect foreign investments to be hit as the economy slows in the medium term, widening the external funding gap and potentially dragging the currency lower.
Analysts said data which surprised on the upside in the past few weeks was showing signs of running out of steam. The latest survey from the Confederation of British Industry showed that retail sales fell unexpectedly in September.
Data from the BoE on Thursday showed mortgage approvals fell to their lowest level since November 2014 last month as the housing market continued to slow after June’s vote, Bank of England data showed on Thursday. But lending to consumers continued to grow rapidly, expanding at a rate close to the 10-year highs seen in previous months.
“Market expectations for BoE easing continues to look too conservative in our view, with 5 basis points of rate cuts priced for the November meeting versus our economists’ expectations for a 15 basis point cut,” BNP Paribas strategists said in a note.
“Our economists think data for the remainder of the year will signal the economy slowing down further, supporting November action. We think sterling is likely to weaken over the coming weeks.”
Reporting by Anirban Nag; Editing by Louise Ireland