Pound Hits Fresh Two-Month Low as Traders Add Dovish BOE Bets
The pound fell to the lowest against the dollar in more than two months and gilts jumped after UK jobs data prompted traders to add to wagers on Bank of England interest-rate cuts.
Sterling reversed a gain to fall as much as 0.6% to $1.3258, its lowest since Aug. 4. Money markets are pricing in nearly nine basis points of BOE interest-rate cuts cuts by year-end compared with five before the labor report, which showed unemployment unexpectedly rose and private-sector wage growth slowed more than forecast.
UK government bonds advanced across the curve after the data. The 10-year yield fell as much as five basis points to 4.60%, the lowest since mid-September.
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Options markets reflect bearish signs for the pound as so-called risk reversals show traders positioning for the UK currency to extend its recent losses. Focus is building on the two-month tenor, which captures the UK Autumn Budget.
Still, losses could be short-lived as the unemployment report doesn’t materially change the BOE’s expected rate path, according to Valentin Marinov , a strategist at Credit Agricole SA in London.
“The GBP is somewhat weaker in the wake of the data but the release is hardly a game changer for the BOE as it still debates whether and when to cut rates again,” Marinov wrote. “As a result, any pound losses could prove contained in the very near-term.”
