LONDON (Reuters) - The pound recouped some losses on Tuesday after Bank of England Governor Mark Carney said he was ready to stay in his job beyond his planned leaving date, but concerns over Brexit kept a lid on the British currency’s gains.
Sterling’s recovery was further spurred by a Reuters news report the European Union could offer new guarantees to Britain to win London’s support for a solution aimed at avoiding an Irish border after Brexit.
The pound has fallen recently amid weak economic data, doubts over Prime Minister Theresa May’s leadership and opposition from the European Union to Britain’s proposals for exiting the regional bloc.
It suffered its biggest daily drop against the euro in more than three months on Monday after the European Union’s chief Brexit negotiator said he strongly opposed Britain’s latest proposal.
On Tuesday, the currency edged off a one-week low against the dollar as Carney suggested to a parliamentary committee he was willing to remain on as BoE governor to help ease Britain’s economy through its departure from the European Union.
British media said last week that Carney could stay longer at the BoE to allow the finance ministry to focus on Brexit talks in the coming months.
“The policy continuity that would ensue under Carney extending his term would be supportive for sterling as it would reduce policy uncertainty at a time when the currency is likely to be riddled with other Brexit-related uncertainties,” said ING currency strategist Viraj Patel.
The relatively small moves in sterling on Tuesday, however, showed how personnel changes at the BoE will not significantly impact markets when the major driver for the economy and central bank policy is Brexit, Patel added.
In August the BoE pushed interest rates above their financial crisis lows, but signalled it was in no hurry to raise them further as Britain heads for Brexit next year with no clear plan for leaving the EU.
The front-runner to succeed Carney is widely seen to be Andrew Bailey, the chief executive of Britain’s Financial Conduct Authority.
“This procrastination around one of the UK’s most important policy appointments is unwelcome ... (especially) at a time when more than anything Britain needs certainty, about who will be overseeing monetary policy into the next decade,” said Michael Hewson, chief market analyst at CMC.
At 2:01 p.m. EDT (1801 GMT), the pound was down 0.12 percent against the dollar at $1.2857. Sterling fell to $1.2810 earlier in the session.
Against a broadly weaker euro, sterling traded up 0.2 percent at 90.065 pence.
Sterling’s bounce off its earlier lows accelerated after Danuta Hubner, who chairs the European Parliament’s constitutional affairs committee, told Reuters: “We are open to introducing some changes to the backstop solution so that it is politically acceptable for the UK.”
A survey showing weaker than expected growth in Britain’s construction sector in August - another sign of the economy wilting in 2018 - piled further pressure on sterling.
The purchasing managers’ index (PMI) dropped to a three-month low of 52.9 last month from July’s 55.8, below all forecasts in a Reuters poll of economists.
The slide follows the weakest manufacturing PMI in more than two years on Monday, but analysts will not have a broader picture of the economy until figures for the much larger services sector are released on Wednesday.
Reporting by Tom Finn in LONDON; additional reporting by Saqib Ahmed, Richard Leong in NEW YORK; editing by William Maclean and G Crosse