Pound Falls as Brexit Worries Outweigh Bank of England Rate View
Pound Recovers as Bank of England Less Dovish Than Expected
(Bloomberg) -- The pound fell as concern about Brexit returned to the fore Thursday, helping erase earlier gains that came after a lack of surprises from the Bank of England’s December monetary policy vote. U.K. government bonds continued to slide.
The currency’s recent winning streak ended abruptly with the news earlier this week that Boris Johnson would seek to set a legally binding deadline of December 2020 to leave the European Union, bringing back the risk of a no-deal Brexit and dashing market hopes that a strong Conservative majority would lead to increased political stability. Nonetheless, the pound is up more than 2% for 2019, leaving investors ready to take profits into the year-end, according to market participants.
The prime minister’s move on the Brexit deadline “hurt sentiment, helping trigger a rush of profit taking before funds make their year ends,” according to Jordan Rochester, a strategist at Nomura International Plc. “Next year, Parliament will be less of a focus. Instead it will mainly be the decisions made by the executive.”
The pound was down 0.3% to $1.3033 by 4:45 p.m. in London, after a two-week low of $1.2990. It had bounced higher in the immediate aftermath of the BOE’s decision. The yield on U.K. 10-year government bonds was up three basis points to 0.80%.
Ahead of the rate decision, money markets were largely pricing a rate cut from the central bank by next December, amid renewed concerns over a no-deal Brexit. The 7-2 vote and the comments from the central bank that a modest rise in the key rate may be needed if risks don’t materialize were taken positively by the market. Some economists had also expected a third dissenting voter at the December meeting.
--With assistance from Anooja Debnath.
To contact the reporter on this story: Charlotte Ryan in London at cryan147@bloomberg.net
To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Michael Hunter, Neil Chatterjee
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