Pound Set for Further Trouble After BOE’s Saunders Turns Dovish

(Bloomberg) — The pound’s woes multiplied on signs that even a smooth Brexit may not be enough to prevent the Bank of England from lowering interest rates.

fell to its lowest in nearly three weeks and U.K. rallied as Bank of England policy maker Michael Saunders said Brexit uncertainties are likely to keep depressing growth, even if the departure from the European Union is smooth, delayed or canceled. Money markets now price a quarter-point rate cut by August 2020, from December 2020 on Thursday.

“Even the more hawkish MPC members are starting to talk about the potential need for rate cuts,” said MUFG analyst Lee Hardman. “It is a further negative for the pound but Brexit developments should remain key driver of performance.”

The pound is headed for its worst week since the start of August as the political turmoil in Westminster deepens and the European Union loses faith a deal can be reached by the Oct. 31 Brexit deadline. The central bank had previously been expected to stay on hold through any Brexit delay but Saunders’ comments suggest a reversal in thinking, adding to the negative outlook for the currency.

NOTE: Pound Traders Are Most Concerned About Risks Looming in December

The pound fell 0.5% to $1.2271, the lowest since Sept. 9. The yield on U.K. 10-year government bonds fell as much as five basis points to 0.47%, the lowest since Sept. 4. The pound’s drop gave the share index a boost, with the gauge up around 0.9% compared to a 0.3% rise for the gauge.

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