Bloomberg News

Pound May Weaken Against Dollar as Risk Rises, Says BNY Mellon

June 03, 2011

June 3 (Bloomberg) -- The pound may weaken against the dollar as the Bank of England maintains loose monetary policy and rising global risk encourages investors to favor the U.S. currency instead, according to Bank of New York Mellon Corp.

Money markets aren’t pricing in an increase in the central bank’s key interest rate until February, according to sterling overnight interbank average forwards, Tullett Prebon Plc data show. As recently as February, investors were betting the rate would be lifted when policy makers meet next week.

“All the signs are that policy remains on hold for the foreseeable future,” BNY Mellon Chief Currency Strategist Simon Derrick wrote in an e-mailed note today. Global indicators such as the falling Shanghai stock index are “flashing warning signs about rising risk aversion, typically a dollar positive. We wonder whether we may be about to see the start of a sustained move lower in cable.”

Cable refers to the dollar-pound exchange rate. The Shanghai Composite has plunged 11 percent from this year’s high on April 18 on concern Chinese economic growth is slowing.

The British currency slid 0.5 percent to $1.6298 as of 11 a.m. in London, dragged down as data showed weaker growth in the nation’s services industries. Sterling has slumped 2.4 percent against the U.S. currency since the end of April.

--Editor: Keith Campbell, Peter Branton.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.


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