Sterling slips to session low after Sue Gray report, economy in focus

Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company’s headquarters in Vienna, Austria, November 16, 2017. REUTERS/Leonhard Foeger

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LONDON, May 25 (Reuters) – Sterling slipped to a session low against the U.S. dollar on Wednesday after the release of a report by a senior civil servant into lockdown breaches at British Prime Minister Boris Johnson’s Downing Street office.

A failure of leadership was to blame for a culture that led to illegal parties being held during coronavirus lockdowns, the report by senior official Sue Gray said. read more

Sterling was down 0.4% to a session low of $1.24855 . Against the euro, the pound was up 0.3% at 85.40 pence but off session highs.

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The report will heap further political pressure on Johnson, though analysts remained focused on the slowing economy and decades-high inflation.

“We’ve seen reports after reports after reports of lockdown breaches,” said Simon Harvey, head of FX analysis at Monex Europe, after the publication of Gray’s report.

“I think there are more pressing matters for currency traders.”

Data on Tuesday showed a sharp slowdown in British business activity in May, with S&P Global’s flash Composite Purchasing Managers’ Index slumping to a 15-month low, adding to fears that the economy will slip into recession. read more

“Fears about the fragility of the UK economy look set to keep sterling under pressure after the much weaker than expected PMI data,” Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, said in an email.

Traders scaled back expectations for interest rate hikes from the Bank of England (BoE) following Tuesday’s data, with money markets now pricing in around 120 basis points of tightening by year-end.

BoE Chief Economist Huw Pill said, in an interview published on Wednesday, he thought more tightening was needed but not necessarily to a “super restrictive” stance. read more

The Bank of England has raised rates four times since December, with markets fully pricing in another 25 basis point hike at the June meeting.

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Reporting by Samuel Indyk; editing by Dhara Ranasinghe and Gareth Jones

Our Standards: The Thomson Reuters Trust Principles.

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