Pound logs biggest quarterly drop since the financial crisis
The British pound records its biggest quarterly drop since the financial crisis on Thursday after Bank of England Governor Mark Carney says the central bank would likely need to further ease monetary policy this summer.
The British pound fell Thursday, capping its worst quarterly performance since the financial crisis, after Bank of England Governor Mark Carney said the central bank would likely need to further ease monetary policy this summer.
Carney’s remarks sent the currency spiraling lower, pushing it to a 7.9% quarterly decline—larger than a 6.6% drop in the opening three months of 2013, but far smaller than the 19.3% drop seen in the final quarter of 2008.
Sterling traded at $1.3244 late Thursday in New York after Carney’s remarks. It traded at $1.3429 late Wednesday, rebounding from a 31-year low reached earlier in the week.
Meanwhile, the euro strengthened against the U.K. currency, rising to 83.62 pence late Thursday, compared with 82.71 pence late Wednesday. The shared currency gained 5.5% on the quarter.
“In my view, and I am not prejudging the views of the other independent [Monetary Policy Committee] members, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer,” Carney said.
The pound has dropped sharply since U.K. voters in a referendum last Thursday elected to leave the European Union—a decision that has stoked speculation about a possible recession in the U.K. and fostered worries about knock-on effects to global growth.
Earlier Thursday, the U.K.’s Office of National Statistics showed the country’s current-account deficit equaled 6.9% of gross domestic product in the first quarter, down slightly from a record of 7.2% in the fourth quarter of 2015. The data also helped weigh on the pound.
The deficit is “a big worry, and the only way it’s going to shrink is by exports going up, and by imports going down,” said David Bloom, global head of currency strategy at HSBC.
“If we had a big current-account surplus, sterling would be rising,” he added.
Political uncertainty in the U.K. has also weighed on the British currency, as investors worry that the government lacks a coherent plan for managing its exit from the EU.
EU leaders are urging the U.K. to move ahead with the first step in triggering Brexit, or the U.K.’s exit from the EU. But Prime Minister David Cameron, who announced his resignation after the result of the referendum, said he would leave the negotiations to his successor.
Adding to a climate of political turmoil, Brexit backer and former London Mayor Boris Johnson said Thursday he won’t run in the race to become Britain’s next prime minister.
Analysts expect a choppy path for the U.K. currency amid the political upheaval. “The pound has barely recovered and continues to trade near its lows,” said Craig Erlam, senior market analyst with Oanda, in a note. “We could see further downside pressure on the pound in the coming weeks, with the cloud of uncertainty surrounding the U.K. unlikely to ease up.”
Dollar’s largest quarterly drop against yen since the crisis
The dollar‘s 8.3% drop against the yen this quarter was also its largest since the crisis, driven by the Federal Reserve’s reluctance to raise interest rates and worries about the global repercussions of a Brexit.
The dollar bought ¥103.23 late Thursday, compared with ¥102.94 late Wednesday.
The Fed decided to leave interest rates unchanged at their policy meeting in June after a surprisingly weak reading on the pace of jobs growth in May stoked worries that the U.S. economic recovery could be running out of steam.
Meanwhile, the euro weakened 2.5% against the dollar as worries about the Brexit outweighed delayed expectations for a Fed rate increase.
China’s yuan ended the quarter near its weakest level in five years, moving lower on Thursday after Reuters reported that the People’s Bank of China would be willing to allow its currency to weaken further to help boost growth. It was the dollar’s largest.
Source: MarketWatch
