Sterling braced for further falls on Brexit data

Speculators are the most bearish on the pound since records began as they await data that will give the clearest picture yet of the effects of Britain’s decision to leave the EU.

Sterling touched a one-month low versus the dollar before the UK reports this week on July inflation, retail sales and jobless claims, which are forecast to show the economy is struggling in the wake of the June 23 referendum.

The pound dropped to a 31-year low against the dollar after the Brexit vote, and resumed its decline following the Bank of England’s decision to cut interest rates and boost monetary stimulus.

The UK currency fell 0.2% to $1.2889 at one stage yesterday, and touched the lowest since July 11. 

Sterling dropped to $1.2798 on July 6, and its 12.5% slide this year makes it the worst performer among 32 peers. 

Against the euro, sterling fell for a sixth day, trading at one stage as low as 87 pence, before rallying to 86.7 pence. 

A year ago, the UK currency was trading was trading at 71 pence.

“The pound has broken through some key psychological and technical support levels,” said Angus Nicholson, a market analyst at IG in Melbourne. 

“If, as expected, we see further evidence of the U.K. heading into technical recession, it’s difficult to think of any scenario other than further BoE (Bank of England) easing,” he said.

Hedge funds and other large speculators boosted net bearish wagers on the pound against the dollar to 90,082 contracts in the week to August 9, the most in Commodity Futures Trading Commission figures dating from 1992. 

Investors were last positive on the UK currency in November. 

While surveys have already signalled contractions in manufacturing, construction and services since the EU referendum, this week’s data will provide more concrete evidence of the state of the economy.

The Bank of England cut interest rates to a record-low and restarted its quantitative-easing programme on August 4 in an attempt to shield Britain from the effects of its decision to quit the world’s biggest single market. 

The reports will provide “the first real numbers” on the nation’s economy since the vote, said Richard Falkenhall, a strategist at SEB in Stockholm. 

“On the back of negative numbers,” sterling could fall to $1.27 or $1.28, he said. “We’re grinding slowly lower,” he said.

Meanehile, UK employers have turned more cautious about hiring and the price of homes for sale fell by the most since late 2015, according to surveys that added to signs the economy has stumbled since the Brexit referendum. 

But shoppers seem to have brushed off the shock of the June vote to leave the EU, another survey showed, suggesting consumer spending will soften the hit.

One of the latest surveys showed the proportion of employers expecting to increase staffing over the next three months dropped from 40% before the vote to 36% after it. 

The CIPD, a human resources group, and staffing firm Adecco, also said one in five employers expected to reduce investment in training and skills as a result of Brexit. 

Property website Rightmove said asking prices of homes for sale in England and Wales fell in August by the most since November, as post-Brexit uncertainty added to the usual summer lull.

The biggest drop was in London, where asking prices fell by 2.6 percent from July.

More on this topic

More than 150 lorries hold cross-border protestMore than 150 lorries hold cross-border protest

Johnson faces fresh showdowns on Brexit as deadline loomsJohnson faces fresh showdowns on Brexit as deadline looms

How can Boris Johnson ‘get Brexit done’ by October 31?How can Boris Johnson ‘get Brexit done’ by October 31?

Labour to push for Commons vote on new Brexit referendumLabour to push for Commons vote on new Brexit referendum