Sterling slips, posts worst quarter since 2008

[LONDON] Sterling slipped on Thursday and closed the quarter with its heaviest trade-weighted losses since late 2008, having been hurt by global financial turmoil and worries over a possible British exit from the European Union.

Markets have become increasingly rattled since the start of the year by the prospect of Britons voting to leave the EU at a June 23 referendum, which banks reckon would deal a substantial blow to the country's economy and currency.

Investors worry that leaving the EU would threaten the huge foreign investment flows Britain needs to fund its current account deficit, one of the biggest in the developing world and which swelled to 7 per cent of GDP in the final quarter of 2015, according to figures released on Thursday.

Uncertainty about the referendum has also, along with weak wage growth, clouded the picture for increases in interest rates from the Bank of England. That, and risk-averse markets, have driven sterling down further.

Sterling weakened by half a per cent against the euro on Thursday to trade at 79.30 pence, despite earlier data that showed Britain's economy grew at a faster pace last year than previously estimated.

On a trade-weighted basis, the pound fell around a third of a per cent. Since January, it is down 6.3 per cent, its worst quarterly showing since the last quarter of 2008.

"At the start of the year, overall positioning in the pound was about neutral, but by the end of January, positioning was at an extreme short, so we'd had a very aggressive shift," said BNP Paribas currency strategist Michael Sneyd.

"That was a combination of the risk-off environment we had, the lack of wage growth in the UK economy, and then also investors starting to put a lot more consideration on the EU referendum."

Against the dollar, the pound was flat at US$1.4384.

The British economy grew by 2.3 per cent in 2015, numbers from the Office for National Statistics showed, higher than a previous estimate of 2.2 per cent and safeguarding Britain's position as one of the fastest-growing developed economies.

Though growth slowed a little towards the end of the year, GDP was 2.1 per cent bigger in the last three months of 2015 than in the fourth quarter of 2014, stronger growth than the previous estimate of 1.9 per cent.

The pound initially rallied after the growth numbers, with currency traders appearing unfazed by numbers released at the same time that showed Britain's current account deficit hit a record 5.2 per cent of GDP for 2015 as a whole.

"The current account story is well known, and the deficit doesn't have much of an impact unless we're (looking) in times of global financial stress," said Societe Generale currency strategist Alvin Tan, in London.

"We're not in that world, at the moment."


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