The British Pound Sterling, on Tuesday, June 20 slumped by almost a full cent against the dollar on Tuesday after Bank of England Governor Mark Carney said now was not the time to raise interest rates.
Sterling sank to a one-week low of $1.2669 from $1.2758 after the text of Carney’s Mansion House speech was released. It was last trading at $1.2691.It also fell over half a percent to a five-day low of 88.04 pence per euro.
Ten-year yields on British government bonds fell below 1 percent after the text was released and last stood at 1.001 percent down 3 basis points on the day.
Short sterling interest rate futures <0#FSS:> also rose strongly, especially for the late 2018 and early 2019 contracts, as the market priced in a shallower path of interest rate hikes in future years.
The FTSE 100 stocks index, whose externally-focused companies often benefits from a weaker pound, was up 0.24 percent, slightly outperforming the pan-European STOXX 600 index. Consumer stocks were among the top FTSE gainers, helped by the prospect of lower interest rates for longer.
“Carney doesn’t want to be seen as reacting too quickly (to Brexit) – he’s also fully aware the UK hasn’t left the EU yet and he wants to keep his monetary policy loose on the off chance that the UK doesn’t get an amazing deal,” said David Madden, markets analyst at CMC Markets.
Sterling investors also kept a wary eye on politics, with the dual uncertainty of having no government at home 12 days after a parliamentary election and talks, which began on Monday, on Britain’s exit from the European Union adding to pressure on the pound.
Sterling sank nearly 3 percent after the election produced a parliament with no clear majority for any party and disappointed investors who had earlier bet on a landslide victory for May.
