A barrage of gloomy corporate news hit sterling on Wednesday and sent the currency lower across the board.
Shares in Taylor Wimpey, the UK’s largest housebuilder, halved after the company said it may breach its banking covenants if the housing market did not recover. Also, Marks and Spencer, the bellwether UK retailer, said sales had fallen sharply in the first quarter.
Adding to the pound’s woes were figures showing activity in the UK construction sector in June declining at its most rapid since 1997. Data from the Bank of England showing mortgage equity withdrawals falling to their lowest since 2001 also weighed on sterling.
Jonathan Loynes, of Capital Economics, said that with the Bank of England unable to cut interest rates aggressively because of rising inflationary pressure, the prospects for the UK economy looked bleak. He said: “Recent news has suggested that things are likely to be even worse than we had previously thought, with a strong chance that the economy enters a technical recession.”
Late in New York, sterling, which on Tuesday hit a three-month high of $2.0006 against the dollar, was down 0.2 per cent at $1.9920, had eased 0.6 per cent to £0.7965 against the euro and fell 0.1 per cent to Y211.20 against the yen.
Meanwhile, the euro hit a 10-week high against the dollar as rising eurozone producer price inflation data cemented expectations that the European Central Bank would raise interest rates after its policy meeting on Thursday. Figures showed producer prices rose in May at their fastest pace in 25 years.
Martin van Vliet, of ING Financial Markets said: “This will provide the hardliners on the ECB’s governing council with fresh ammunition to argue the case for continued hawkish rhetoric at the subsequent news conference”.
The euro rose 0.5 per cent to $1.5865 against the dollar and climbed 0.4 per cent to Y168.17 against the yen.
The dollar fell 0.4 per cent to SFr1.0160 against the Swiss franc and eased 0.1 per cent to Y105.95 against the yen as investors questioned the Federal Reserve’s ability to raise interest rates after a survey of US private sector employment came in weaker than expected in June.
Elsewhere, the Australian dollar jumped 1 per cent higher to $0.9642 against the US dollar and gained 0.9 per cent to Y102.20 against the yen after Australian retail sales came in higher than expected in May. Analysts said the data challenged the Reserve Bank of Australia’s contention that interest rates were high enough to contain inflationary pressures.
Meanwhile the South Korean won rose 1 per cent to Won1,036.50 on reports that the country’s central bank had intervened to sell $3bn in an attempt to support the currency.
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