LONDON: Sterling fell against a broadly stronger dollar on Friday, a softer consumer sentiment survey adding to the flow of negative news on the British economy as Prime Minister David Cameron made a long-awaited speech on Europe.
The pound, pushed down along with other major currencies against the greenback by an almost 7 percent slump in oil prices over the past day, fell another third of a percent to $1.5690 . It was also 0.2 percent weaker at 79.37 pence per euro.
Lower fuel costs should mean that inflation, already declining across Europe, will fall further, encouraging bets that the Bank of England will hold off on raising interest rates for longer - possibly even into 2016, some analysts now say.
The GFK indicator of consumer morale held steady at -2 for a second month running in November but was a shade weaker than the forecast of -1 in a Reuters poll.
"Whatever positive connotations lower energy might have for global growth, the extent and pace of the decline in oil seems the more worrying factor for the moment," said Michael Turner, a strategist with RBC Capital Markets.
"The pound is back testing 1.57 against the dollar." Revised expectations for official borrowing costs have been the main reason the pound has fallen around 9 percent against the dollar since July.
But the market is also increasingly aware of political risks linked to next year's general election, worried that the new government may end up taking Britain out of the European Union.
Cameron's speech reiterated that he would hold a referendum on continued EU membership if his Conservatives win the election and outlined curbs on benefits for migrant workers in Britain, though not hard ones on immigration itself. Dealers said it had little immediate impact in a market mainly focused on the broader dollar move.
"The European issue and the election are creating political uncertainty and that is never a positive for a currency," said Neil Mellor, a strategist with BNY Mellon in London. "It is probably not enough itself to drive sterling lower, but it is running concurrently with a lot of economic uncertainties. The direction is clearly still lower."
He forecast the pound would fall further against the dollar by the end of the year, with the next big support around $1.53, and that it would dip below $1.50 in six months.
In a weekly strategy note on Thursday, UK-based HSBC also lowered its forecasts for the pound against the dollar, citing the risks around the election and Britain's unresolved structural problems with twin current account and budget deficits.
"This potent cocktail of cyclical, political and structural drivers should ensure GBP remains on wobbly legs beyond the festive season," said David Bloom, the bank's global head of FX Research.
Bloom said he expected sterling to fall to $1.54 by the end of March and to $1.48 by the end of 2015, from $1.5720 on Thursday.
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