LONDON Oct 6 Sterling fell on Thursday,
undermined by growing concerns of a 'hard' exit by Britain from
the European Union and sidestepping Prime Minister Theresa May's
comments on the impact of loose monetary policy.
May, in a speech to the party faithful on Wednesday, raised
the issue of the side effects of ultra-low interest rates and
money-printing bolstering a view that policymakers are probably
reaching a limit to monetary stimulus with benchmark rates in
several western countries already at negative levels.
It also led to speculation that the government was probably
against further interest rate cuts by the Bank of England, given
the adverse impact on savings and pensions.
"In our view, this suggests that once (BoE chief) Mark
Carney's term is finished at the BoE, he may be replaced by
someone more hawkish on policy," said Charalambos Pissouros,
senior analyst at IronFX Global.
"Although this could be seen as a relatively bullish signal
for sterling, traders are currently more concerned with
political risks and the possibility of a "hard Brexit" rather
than monetary policy or economic data."
Carney was appointed in 2012 for five years, but has come
under criticism from some political figures who said he tried to
frighten the electorate into voting to stay in the European
Union in a referendum held on June 23. Britons voted to leave
the EU in the vote.
Sterling was down 0.2 percent at $1.2720, not far
from a 31-year low of $1.2686 struck on Wednesday. It has
already lost over 2 percent this week, hurt by May's
announcement on Sunday that the formal process to take Britain
out of the EU will start by the end of March.
The euro was up 0.2 percent at 88.085 pence,
having struck a five-year high of 88.43 pence on Wednesday.
Sterling trade weighted index was down at 76.1, its
lowest since early 2009.
Many economists and investors think May's government is
leaning toward a "Hard Brexit" option where Britain quits the
single market in favour of imposing controls on immigration.
Some fear that could hinder trade and constrict the foreign
investment needed to fund Britain's huge current account
deficit, one of the biggest in the developed world.
Economic activity has held up better than many had expected
since the June referendum to leave the EU, but many policymakers
are anxious about the prospects for future investment. Subdued
investments are likely to hit growth and lead to job losses.
A report on Tuesday commissioned by consultancy firm Oliver
Wyman said Britain's financial industry could lose up to 38
billion pounds ($48.3 billion) in revenue if the deal leaves it
with restricted access to the EU single market.
"May has pushed her party way across the centre ground -
taking issue with self-serving individuals and businesses and
appealing to the non-metropolitan voter," said Chris Turner,
head of currency strategy at ING.
"That does not bode well for financial services in Brexit
discussions. While the euro/sterling could correct lower.... a
dip to 87.35/50 looks a buy.
(Reporting by Anirban Nag; Editing by Toby Chopra)