Sterling Sinks for Second Day on Dollar Strength

With currencies largely range-bound on Tuesday owing to a U.S. holiday, traders largely kept the dollar bid in morning deals in London. [FRX/]

Hawkish comments from BoE policymaker Michael Saunders did not have a sizeable impact on the pound. Saunders said the central bank may need to raise interest rates next year if growth continues and inflation becomes stickier.

Sterling, earlier trading flat on the dollar, eased 0.2% to $1.381 by 0820 GMT, trading some ways off a 4-week high of $1.3890.

Against the euro, the pound traded flat at 85.90 pence.

“We see sterling under pressure for a second straight day this morning, largely due to continued dollar strength which has been in evidence pretty much since the Asia open on Sunday,” said Michael Brown, senior market analyst at Caxton FX.

“I would assume that the market sees Saunders as an outlier on the MPC (Monetary Policy Committee), thus feels no need to reprice hawkishly based on what he’s said.”

Brown added that on the whole, the market remains fairly subdued, and tight ranges continue to prevail.

Bets that Britain’s rapid pace of COVID-19 vaccinations would lead to a faster economic reopening and rebound had earlier propelled sterling to one of the best performing G10 currencies this year.

But recent surveys have hardened indications of slowing economic growth, after a strong rebound triggered by the country’s rapid vaccine rollout earlier in the year. They also reveal that economic momentum is stuttering under the impact of Brexit, global supply chain issues and COVID isolation rules.

On Monday, sterling dipped on the back of a survey of purchasing managers that showed the UK construction industry grew last month at its weakest pace since the lockdown of early 2021, hit by a severe shortage of building supplies.

Friday PMI data had showed growth in the services sector slowed down in August compared with July.