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Sterling hits further lows

• Posted by Shyam Gokani in Bank of England, Currency, Dollar, Economy, EUR, GBP, Mark Carney, Sterling, UK
• August 12, 2016
• No Comments

Sterling hovered near a one-month low this morning on expectations that poor economic data will lead the Bank of England to ease monetary policy again in the coming months to cushion the economy from a sharp downturn.

A tick up in U.S. Treasury yields and more signs of weakness in Britain’s housing market had pushed sterling back below $1.30 yesterday, and traders said there were little reason to buy the pound going into the weekend.

Construction data for June released at 09:30 GMT showed a contraction as activity slowed before the June 23 referendum on the European Union.

Sterling, which has fallen almost 3 percent since the Bank of England announced a package of policy easing last week, was down at $1.2959, having hit a one-month low $1.2936 last night.

The heightened expectations over the Bank of England cutting UK rates to near zero to reclaim economic stability has caused sterling vulnerability to become a recurrent theme in the currency markets.

Sterling could head lower if the divergence in monetary policy between the Federal Reserve and BoE becomes more entrenched. While the Fed is expected to raise interest rates later this year, the BoE cut rates to record levels last week and announced a slew of new bond buying.

Reflecting on this there is a chance we could see the cable hit a new low of 1.25 within the next few months.