British Pound Declines Against US Dollar

• British Pound Declines Against US Dollar

The British pound fell below $1.29 against the US dollar for the first time in almost a year following growing Brexit uncertainty.

This was after the governor of the Bank of England Mark Carney said on Friday that the chances of the United Kingdom leaving the European Union without a deal were “uncomfortably high”.

Liam Fox, international trade secretary, on Sunday put the odds at “certainly not much more than 60-40”.

This upped Brexit uncertainty as investors has been selling off their pound holdings since the comment, especially after the central bank raised interest rates on projected increase in demand.

Analysts at Investors King Ltd said the concerns emanated from confusion created by the BOE’s rate statement and it’s Brexit comments.

“The BoE raised interest rates to rein in inflation and at the same time expect the likely surge in demands to offset economic deficit created by the increase”.

This, according to the analysts is unlikely due to the global trade tensions projected to hurt global growth and offset the competitive advantage of a lower pound.

Therefore, except domestically generated demands are big enough to compensate for a possible drop in exports, the timing of the rate hike might not be perfect.

It is, in fact, possible for the BOE to renege on the current monetary policy if the U.K fails to secure a Brexit deal as it would need to lower rates to sustain job creation, new investment, and support consumer spending.

“Some are thinking in the market that the Bank of England raised rates in order to give them ammunition to cut them in the face of a no-deal,” said Neil Jones, a foreign exchange expert at Mizuho Bank. “The next move by the central bank could be a cut rather than another hike.”

The pound dipped further against the US dollar during the Asian trading session, reaching as low as 1.2850. The lowest since August 2017.

As previously analysed, the uncertainties surrounding both local and international politics are weighing on the U.K economy, therefore, except the Brexit negotiating teams reached an agreement to ease worries amid US-China trade war, the pound might slide to 1.2602 against the US dollar as shown above.