Sterling slumps against dollar

Sterling slumped half a percent against the dollar on Thursday, hit by a renewed fall in oil prices after Opec opted not to cut supply. Saudi Arabia blocked calls from poorer members of the oil exporter group for output cuts to arrest a slide in crude prices. Lower fuel costs may support global economic growth, but it also should mean that inflation, already declining across Europe, will be fall further.
"It is the sharp drop in oil that is behind this afternoon's move for the pound," said Lee Hardman, a currency strategist with Bank of Tokyo Mitsubishi UFJ in London. "It will give us more downside risk to inflation next year and that increases the chance of the Bank of England holding off for longer on any rise in interest rates."
Money market forward interest rates still show investors pricing in a quarter-point rise in the BoE's record-low rates by the end off 2015. But Hardman said there was growing talk it would hold off until into the following year. Revised expectations for official borrowing costs have been the main reason the pound has fallen almost 10 percent against the dollar since July. But the market is also increasingly aware of political risks before next year's general election. Added to that are 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," David Bloom, global head of FX Research at HSBC in London, said in a weekly note to clients. He called for sterling to fall to $1.54 by the end of the first quarter of next year and $1.48 by the end of next year, from $1.5720 on Thursday.
Many banks are calling for sterling to fall another 3 to 4 cents against the dollar over the next month or two. Many also have a bullish outlook on the dollar against the euro, assuming the European Central Bank will soon be forced into outright money-printing to support growth. The pound did better against a weaker euro on Thursday but was still 0.2 percent weaker at 79.32 pence per euro.