LONDON (Reuters) - Sterling skidded to an eight-month low against the euro on Thursday, trading close to 90 pence after the head of the European Central Bank said possible changes to policy would be discussed in the autumn.
Though Mario Draghi said no date had been set for discussing any changes to the programme and that ECB rate-setters had been unanimous in their decision not to change their guidance an monetary policy, investors reckoned discussions in the autumn would lead to monetary tightening next year.
The euro jumped as much as 1.5 percent against the pound EURGBP=D3, touching 89.765 pence, its strongest since early November.
“Traders may have found that Draghi’s comments were less dovish than anticipated, despite his emphasis on the continued need for significant stimulus and on subdued underlying inflation,” said Caxfon FX anaylst Alexandra Russell-Oliver.
“Ultimately, the expected winding down of stimulus will likely continue to be supportive of the euro.”
Against the dollar, sterling dipped back below $1.30 on concern UK ministers are prepared to walk away from Brexit talks without a deal. That mood of uncertainty outweighed a slightly better-than-expected batch of retail sales numbers.
That briefly helped the pound recover some ground from a fall after Trade Minister Liam Fox said in a radio interview the country could get by without a Brexit trade deal - an outcome many economists have warned could cripple business activity.
“Official comment this morning suggesting the UK can survive with no Brexit deal will likely outweigh (the retail sales numbers) on the pound (and) maintain the downtrend,” said Neil Jones, head of hedge fund FX sales at Mizuho in London.
The pound rose above $1.31 to 10-month highs earlier this week as the dollar fell across the board, and as investors bet the 25-basis-point cut in British interest rates after last year’s vote for Brexit could be reversed in the coming months.
But BoE policymakers have made it clear that any monetary tightening will be data-dependent.
Thursday’s retail sales numbers showed sales rose 2.9 percent in June compared with a year earlier, and 0.6 percent on the month - both beating forecasts in a Reuters poll.
Reporting by Patrick Graham and Jemima Kelly; editing by Mark Heinrich