LONDON: Sterling slipped towards 14-month lows against the dollar and traded near a one-month low against the euro on Monday, with investors adding to bearish bets as British rate hike expectations continued to be pushed back, traders said.
At the weekend, Bank of England Governor Mark Carney and chief economist Andy Haldane expressed their concerns on low inflation.
Haldane said he is watching "like a dove" for signs that expectations of very low inflation in Britain could become entrenched.
Carney warned of "huge disinflationary forces" coming from the UK's trading partners and continued slack in the labour market. Data also showed house prices across England and Wales fell 1.7 percent month-on-month in November, according to Rightmove.
All of which saw sterling slip to $1.5635, not far from a 14-month low of $1.5593 struck on Friday. The euro was higher against the pound at 79.96 pence, having hit a one-month high of 80.03 pence earlier in the day.
Last week, the BoE said inflation was likely to slow, pushing back bets on the first post-crisis interest rate hike to the end of 2015 with some now pricing in a move in the first quarter of 2016.
"The BoE's forecasts were assuming the first rate rise in October 2015, however some economists are now even talking about this being delayed to 2016. Let's just say that UK rates will remain low for a very considerable period of time," said Stewart Richardson, chief investment officer at RMG Wealth Management, adding sterling will struggle in the near term.
The gap between the interest rate-sensitive two-year UK gilt yield and its US counterpart has narrowed to its lowest since October 2013, making the pound less attractive to investors.
That narrowing of spreads comes amid the growing prospect that the UK will be beaten as the first major central bank to raise interest rates since the financial crisis - an accolade it had been widely expected to win until the summer. The US Federal Reserve is expected to tighten rates in the middle of 2015.
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