Sterling resumes fall as traders focus on Theresa May’s perceived attack on Bank of England

Sterling has fallen to a 31-year low against the dollar and hit a five-year low against the euro on fears of a hard exit by Britain from the EU and prime minister Theresa May’s comments on the impact of loose monetary policy which some saw as a thinly veiled attack on the Bank of England.

Sterling fell 1% to $1.26, with a Reuters poll showing more losses are in store.

The currency has lost 2.5% this week, hurt by May’s announcement last weekend that the formal process to take Britain out of the EU will start by the end of March.

It fell to 88.2p against the euro, while sterling’s trade-weighted index was stuck near lows last seen in early 2009.

Ms May, in a speech to Conservative Party delegates on Wednesday, raised the issue of the side effects of ultra-low interest rates and money-printing.

Although her spokesman later played down suggestions she was signalling changes ahead in monetary policy, it led to speculation the UK government was against further interest rate cuts, given the adverse impact on savings and pensions.

As a result, gilts came under pressure, with the 10-year yield jumping to its highest since mid-September.

Some saw her comments as unusually blunt and an attack on the Bank of England’s (BoE) independence, raising more uncertainty for the currency, which has been under pressure for months.

“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,” IronFX Global senior analyst Charalambos Pissouros said.

“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.”

Mr Carney, who was appointed in 2012 for five years, has been criticised by some political figures who said he tried to frighten the electorate into voting to stay in the EU in the referendum held on June 23.

SEB currency strategist Richard Falkenhall said May’s comments should be seen in the light of recent criticism by politicians of ultra-easy policies by central banks.

In the US, Republican presidential candidate Donald Trump has accused the Federal Reserve of keeping interest rates low because of political pressure from the Obama administration. UK economic activity has held up better than expected.