Sterling set to stay down after pounding

LONDON • Speculators anticipating a stronger pound should prepare for a long wait.

The British currency suffered the sharpest turnaround of any in the developed world over the past month, tumbling against its Group of 10 peers. Options prices signal further losses versus the US dollar and increasing pessimism against the euro.

Sterling has fallen 1.9 per cent versus a basket of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes in the past month, paring a 5.8 per cent first-half gain when it was the best performer after the Swiss franc.

The pound fell 0.3 per cent to US$1.5252 yesterday morning in London and looks set for its longest run of declines since the period ended Oct 3.

It touched US$1.5239 earlier, the lowest since June 8. It weakened 0.4 per cent to 73.68 pence per euro, after strengthening 0.8 per cent the previous day.

That fall is a blow for hedge funds, which turned positive on the pound versus the greenback for the first time in a year last week.

They are relying on a boost to Bank of England interest rates, but traders have pushed back wagers on an increase far into next year. And the pound's appeal as a haven is waning, dampening the prospects of a rally amid the turmoil in emerging markets.

"Sterling has two issues," said Mr Chris Turner, London-based head of currency strategy at ING Groep NV. "We need some clarity on the (Federal Reserve) cycle. The second issue is China and the unfinished business of the yuan devaluation. That's preventing people from jumping with both feet back into long-sterling positions."

With an imminent boost to rates no longer on the horizon, investors are pouring into the euro instead of the pound.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on September 04, 2015, with the headline 'Sterling set to stay down after pounding'. Print Edition | Subscribe