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Sterling slips under the lows hit after Inflation Report

Ouch. The dollar might be looking weak, but sterling is looking worse.

The pound has slipped under the depths it plumbed last week after the Bank of England’s quarterly Inflation Report cut growth forecasts, citing Brexit uncertainty.

On the same day, the Monetary Policy Committee voted 6-2 in favour of keeping rates on hold, losing one of its hawks in the process.

Now, even as the dollar continues to drift back toward notable lows against most of its major rivals, the pound has fallen below Friday’s close of $1.3035. It fell as far as $1.3016, a level it last touched on July 26. Against the euro, the pound is 0.3 per cent weaker at £0.9054, its weakest since October 2016.

While there was no obvious trigger for Monday afternoon’s sterling stumble, a wealth of analysts have been feeling that the pound has been walking on air above $1.30 for some time. It was last consistently below that mark for much of mid-July, and retook it amid a general trend for dollar weakness, as the chances of support for the greenback from tax reform and fiscal stimulus declined with the Trump administrations rising problems.

Perhaps investors have become accustomed to the threat of Washington gridlock, and have been unnerved afresh by Brexit.

Here’s Hans Redeker at Morgan Stanley:

The UK economy shows increasing signs of losing growth momentum as households adjust spending to their weaker balance sheets, investment stays weak due to Brexit related uncertainties and real rates stay one of the lowest within the G10 with 10-year inflation adjusted returns at minus 1.799%.

Sterlig shorts are recommended. It may see a marginal new cycle high but levels near $1.33 remain a sell.

The FTSE 100, a beneficiary of a weaker pound when stonger FX revenues flatter the profits of companies converting them back to sterling, is heading higher even as its continental neighbours flounder.

London’s blue-chip stock index is being propped up by miners, after metals prices in China moved higher. It at a 34-session high up 0.2 per cent at 7,524.51.