LONDON (Reuters) - Sterling fell towards a one-month low against a euro boosted by higher European bond yields on Monday, extending two weeks of losses during a sell-off of euro zone bonds and a run of weaker-than-expected UK economic data.
Figures released last week showed growth in Britain’s dominant service sector slowed the most in nearly four years in May, suggesting the economy might not recover as quickly as hoped after stumbling in early 2015.
Inflation, meanwhile, fell into negative territory for the first time since 1960, helping to push expectations of when the Bank of England will raise interest rates further back into next year. Many now do not expect a move until August 2016. GBPOIS=ICAP
Sterling skidded 0.9 percent versus the euro on Monday to 73.45 pence EURGBP=D4, close to last week’s low of 73.87 pence. That was its weakest since May 7 - the day of Britain’s parliamentary elections.
“Sterling does look like it’s underperforming a little bit at the moment,” said Ian Stannard, European head of FX strategy at Morgan Stanley.
“We’ve had strong growth data until recently, and now some of the leading indicators have softened, which I think is weighing. Sterling has become much more sensitive to changes in rate expectations recently ... so that may well be what’s holding sterling back at this point.”
Against the dollar, the pound edged down 0.1 percent to $1.5267 GBP=D4. It had earlier risen as high as $1.5305 on reports that U.S. President Barack Obama had flagged a strong dollar as a problem. The greenback later rebounded across the board after the White House denied the reports.
Investors will on Wednesday be focusing on BoE Governor Mark Carney’s annual Mansion House speech. Last year, Carney triggered a sustained rally in sterling when he unexpectedly indicated that interest rates would rise sooner than markets then expected.
“With Q1 activity data having been softer than expected and inflation, albeit temporarily, below 0 percent year-on-year, it would be at least as surprising as it was last year if Governor Carney were to repeat his now famous intervention,” RBC wrote strategists in a research note.
“His remarks on a relatively elevated exchange rate will be closely followed.”
Editing by Larry King