LONDON: Sterling slipped on Tuesday, weighed down by expectations that the Bank of England Governor Mark Carney could flag the possibility of further monetary easing when he speaks later in the day.
Carney appears at the House of Lords Economic Committee to discuss the economic consequences of the Brexit vote and he has the potential to unsettle the pound which has been trading in a $1.22-$1.23 range in the past few sessions.
Traders said with investors pricing out chances of a near-term rate cut from the BOE, a dovish tone from Carney could see the market start to re-price the prospect of a rate cut and push the British pound lower.
Carney's testimony also comes at a time when relations between the BOE and the government appear tense after the Prime Minister Theresa May warned that quantitative easing was having an adverse effect on savers and pensioners. Carney hit back saying he will not "take instruction" over policy.
Sterling was trading 0.1 percent down at $1.2227 while the euro was up slightly at 88.90 pence
"If Carney strikes a more diplomatic tone, then we don't see why the current range in sterling/dollar would not persist," said Kathleen Brooks, research director at City Index, a brokerage.
In the past few weeks as politics took centre stage, concerns about a "hard" Brexit by Britain and a tough stance by the European Union in the negotiations that are likely to start next year saw sterling take a battering.
This week, though, the focus will be on the third-quarter growth readings for the economy due to be released on Thursday.
After a strong second-quarter, Britain's economy is expected to slow and is forecast to grow at 0.3 percent in the third quarter. The report will be the first reading of how the broad economy has performed in the immediate aftermath of the shock vote to leave the EU in June. So far, all the evidence has suggested that the economy has held up well and the country is likely to dodge a recession.
Nevertheless, the currency has shed nearly 18 percent against the dollar since the June vote with losses accelerating in October after May raised the spectre of a "hard" Brexit.
Under a "hard" Brexit the government will negotiate for an exit that favours tighter immigration controls over free trade, likely curbing foreign investment needed to fund Britain's huge current account deficit.
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