LONDON, Sept 29 Sterling held steady above $1.30
on Thursday, supported by improved risk appetite in global
markets, although expectations that the Bank of England might
further ease monetary policy in coming months checked gains.
Those expectations got a boost when outgoing Bank of England
Deputy Governor Minouche Shafik said a rate cut in 2016 would
hinge on data, but that she would rather act pre-emptively.
Shafik's comments contrasted with those of fellow
policymaker Kristin Forbes, who last week said she saw no case
for a further rate cut. Forbes is due to speak later in the day
and hawkish comments could give sterling a slight boost.
Sterling was flat at $1.3025, having struck a
five-week low of $1.2915 on Sept. 23, its lowest since
mid-August. The euro was steady at 86.175 pence.
"We continue to see sterling as a vulnerable currency and
expect further downside for the pound against both the dollar
and the euro in the coming months," Rabobank senior currency
strategist Jane Foley said.
"We look for euro/sterling to move towards 88 pence by the
middle of 2017 and sterling/dollar moving to $1.25 in this time
Investors worry that an exit from the single market will
drag Britain into a recession and blow out Britain's ballooning
current account deficit, already among the highest in the
developed world at about 5 percent of gross domestic product. A
wider current account deficit tends to lead to a lower currency.
On Friday, Britain will release second-quarter current
account deficit figures and forecasts are for a slight
narrowing. But analysts expect foreign investments to be hit as
the economy slows in the medium term, widening the external
funding gap and potentially dragging the currency lower.
Analysts said data which surprised on the upside in the past
few weeks was showing signs of running out of steam. The latest
survey from the Confederation of British Industry showed that
retail sales fell unexpectedly in September.
"Market expectations for BoE easing continues to look too
conservative in our view, with 5 basis points of rate cuts
priced for the November meeting versus our economists'
expectations for a 15 basis point cut," BNP Paribas strategists
said in a note.
"Our economists think data for the remainder of the year
will signal the economy slowing down further, supporting
November action. We think sterling is likely to weaken over the
(Reporting by Anirban Nag; Editing by Louise Ireland)