Sterling hit a two-week low against a dollar that was trading down against most currencies on Tuesday, after the head of the Bank of England said UK interest rates were likely to stay low for "some time". Speaking alongside other BoE monetary policy committee (MPC) members to lawmakers in Britain's parliament, Governor Mark Carney said although there would be no need for negative interest rates such as those in place in the euro zone, the British economy was in a "prolonged interest rate environment".
Carney also said that while the bank tended to look through falls in energy prices, the implications of the pound's recent appreciation were "more complicated" - on a trade-weighted basis, sterling is close 7-1/2-year highs. "You can almost dismiss everything else apart from that one comment," said Bank of New York Mellon strategist Neil Mellor. "That's what matters at the moment."
Investors pushed back their expectations for when the BoE would start to raise rates to the end of 2016 after the bank's latest Inflation Report this month, which saw growth forecasts cut as the bank sounded a dovish tone on inflation, warning of the deflationary impact of a strong currency. Fellow MPC member and BoE Chief Economist Andy Haldane said on Tuesday he saw the risks to the UK economy and inflation as "skewed materially to the downside, more so than embodied in the November 2015 Inflation Report".
Sterling fell to as low as $1.5101 during the policymakers' testimony, its weakest since November 10. "Overall it was pretty much as you would have expected, with the individuals involved expressing their known positions," said Morgan Stanley currency strategist Ian Stannard. "There wasn't really anything new in today's testimony."
Though the pound was 0.2 percent lower against the euro at 70.44 pence, it was still less than a penny away from a three-month high of 69.82 hit last week and close to an eight-year peak of 69.35 pence touched in July. According to an opinion poll carried out after the Paris attacks for the Independent newspaper, more than half of Britons now want to leave the European Union. But investors at a Reuters summit last week said markets were not yet pricing in the possibility of a Brexit.
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