Sterling fell half a percent to a fresh two-week low against the dollar on Friday after Bank of England Governor Mark Carney signalled that the central bank may not raise interest rates in May because economic data was "mixed". Investors had this week pushed the pound, one of the best performing major currencies in 2018, to its highest level since the Brexit referendum in June 2016, in part because of growing expectations the BoE would increase rates next month to curb inflation.
But after weaker-than-expected wage growth and inflation data this week, Carney told the BBC on Thursday that a May rate rise was not a given and that there were other BoE meetings later in the year. Markets are now pricing in a 40 percent chance of a 25 basis point rise in May, down from an almost 70 percent chance before Carney spoke.
"Carney has moved the goalposts," said Jane Foley, an FX strategist at Rabobank. "The data from the UK has shown signs of weakness. There are signs we could be losing momentum." Foley said Carney was correct to have cautioned the market but his comments raised questions about the BoE's forward guidance in February when it had signalled a rate rise was coming soon, and this underlined that investors should see rate moves as contingent on economic data.
The pound fell 0.5 percent to a day's low of $1.4008, its lowest since April 6, as broad dollar strength kept the pound under pressure in late European trading. On Thursday, sterling slid close to 1 percent and the British currency is now down 1.5 percent this week, barely holding on to gains for April, which is normally a strong month for the pound. Against the euro, however, sterling recovered on Friday as the single currency suffered losses across the board. The pound rose 0.2 percent to 87.52 pence per euro.
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