(Adds Goldman research, new quotes, updates prices)
By Jemima Kelly
LONDON, April 3 Sterling skidded on Monday after
data showed British manufacturing lost momentum last month, the
latest sign the economy may be running out of steam after its
surprising resilience in the wake of last year's Brexit vote.
Sterling, whose 20 percent tumble since last June's vote to
leave the EU had helped manufacturers post their fastest growth
in three years in the last quarter of 2016, fell back below
$1.25 after the data, which showed growth in the sector slowed
in the first three months of the year.
By 1635 GMT it was trading down 0.8 percent on the day at
Major banks are split over sterling's direction in the
coming months, with lenders such as Deutsche Bank calling for
the pound to fall close to parity with the dollar, while others,
like Barclays, suggest sterling will rebound to $1.38 in the
This split in opinion, said Mizuho's head of hedge fund FX
sales Neil Jones, was driving volatility in the currency.
Some traders and analysts say that now that the formal
process in which Britain will depart the EU has been triggered,
focus is returning from politics to fundamentals.
One of the main concerns around the economic effect of
Brexit had been Britain's huge current account deficit, which
swelled to as high as 7 percent of GDP last year.
But data last week showed an almost halving of Britain's
current account deficit as a percentage of output, and a rise in
foreign direct investment to 110 billion pounds, offering hope
that one of the economy's big vulnerabilities may be fading.
U.S. investment bank Goldman Sachs, however, said that
although the data showed foreign investors remained optimistic
about Britain's medium-term prospects, they were also simply
taking advantage of sterling's weakness, and that the pound was
still likely to fall over the next 12 months.
Strategists at the bank wrote in a research note that the
pound would remain sensitive to the economic outlook, the Bank
of England's position on how to react to accelerating inflation,
and the nature of exit negotiations between Britain and the EU.
"We continue to think that the currency will reflect more
near-term considerations...than medium-term considerations of
what a fair-value for sterling could be relative to its future
current account position," they wrote.
The manufacturing survey showed growth at a four-month low,
with a third straight month of falls.
"What we've seen building this year is that we have the
currency behaving in a normal, rational way – data surprises to
the downside result in weakness and to the upside result in
strength. That makes it an easier currency to deal with," said
Barclays currency strategist Hamish Pepper.
Data released on Friday from the Commodity Futures Trading
Commission showed speculators trimmed their record-high bets
against the pound in the week to last Tuesday.
(Reporting by Jemima Kelly; Editing by Tom Heneghan)