SEPTEMBER 5, 2018 – The pound recouped some losses on Tuesday after Bank of England (BoE) 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 currency’s gains.
Sterling has been hit recently by weak economic data, doubts over Prime Minister Theresa May’s leadership and opposition from the European Union to Britain’s proposals for exiting the bloc.
It suffered its biggest daily drop against the euro in more than three months on Monday after European Union chief Brexit negotiator, Michel Barnier said he strongly opposed Britain’s latest proposal.
On Tuesday the currency inched up from a one-week low against the dollar as Mark Carney suggested to a parliamentary committee he was willing to remain on as governor to 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 squarely 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,” ING currency strategist Viraj Patel said.
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 European Union.
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… 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.
The pound at GMT 1400 was down 0.3 percent against the dollar at $1.2828. Early in the session it fell to $1.2815, its lowest since Aug 24.
Against a broadly weak euro-sterling traded up 0.4 percent at 89.92 pence.
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 broad picture of the economy until figures for the much larger services sector are released on Wednesday.
