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Pound Declines as BOE Leaves Policy Unchanged Before Brexit Vote

Image: Pound Declines as BOE Leaves Policy Unchanged Before Brexit Vote

Thursday, 16 Jun 2016 08:28 AM

The pound dropped toward a two-month low versus the dollar as the Bank of England left policy unchanged at its final meeting before the U.K. votes on its membership of the European Union.

Sterling weakened against most of its 16 major peers, dropping to a three-year low versus the yen. The June 23 referendum has dominated the currency market with volatility surging as polls suggested a lead for the “Leave” campaign this week. BOE Governor Mark Carney said Brexit could damage the U.K. economy and trigger further weakness in the currency.

The prospect of Britain exiting the world’s largest trading bloc has fueled nervousness across the globe, with the Federal Reserve saying on Wednesday that the referendum was a factor in its decision to keep interest rates on hold. The Swiss National Bank kept its rates unchanged Thursday. Officials there have said the British referendum has potential to cause “enormous stress” in Europe.

While no economists forecast a change in BOE policy Thursday, markets are pricing in about a 50 percent chance of an interest-rate cut before the end of the year.

Data have been offering a mixed picture of the U.K. economy. Reports this week showed inflation holding at 0.3 percent, the unemployment rate unexpectedly falling and wage growth accelerating. Sterling pared its decline Thursday as data showed May retail sales rose a more-than-predicted 0.9 percent.

‘Negative Environment’

“It’s a nervous and very negative environment for the pound,” said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. “With Brexit there will be a lot of uncertainty that will hurt activity and it makes sense for the market to price in the probability of a cut.”

The pound fell 0.6 percent to $1.4122 as of 12:03 p.m. London time. It touched $1.4091 on Tuesday, the lowest since April 14. Sterling weakened 0.1 percent to 79.37 pence per euro. The U.K. currency dropped as much as 2.8 percent to 146.40 yen, the lowest level since April 2013.

A two-week measure of pound-dollar volatility based on option prices surged to the highest level on record this week as five polls in 24 hours showed more support for leaving the EU than remaining.

U.K. government bonds pared earlier gains. Benchmark 10-year yields were little changed at 1.12 percent after falling as much as three basis points, or 0.03 percentage point, to a record-low 1.089 percent. The 30-year gilt yield was at 1.95 percent, having dropped to an all-time low of 1.908 percent.


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The pound dropped toward a two-month low versus the dollar as the Bank of England left policy unchanged at its final meeting before the U.K. votes on its membership of the European Union.Sterling weakened against most of its 16 major peers, dropping to a three-year low...
pound, brexit, boe, currency
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2016-28-16
Thursday, 16 Jun 2016 08:28 AM
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