Mining shares led the FTSE 100 lower on Monday morning, while the pound came under increasing pressure amid data showing speculators have been attacking the currency and comments from a senior Bank of England policymaker reinforcing sterling’s weakness.
With the US stock market closed for the day and small falls from European shares – Britain’s FTSE 100 fell back three points to 6,325 – attention was firmly on currency movements in the wake of last week’s G20 meeting.
The pound dropped 0.3% to $1.5474 after a report from the US Commodities Futures Trading Commission showed that more speculators are shorting – betting the pound will fall – than buying it.
The pound was also guided lower by comments from Bank of England policymaker Martin Weale who said that a falling pound may be the only fix for Britain’s swollen budget deficit.
William Poole, a foreign exchange strategist at FC Exchange, explained: 'By stating that “the most natural means of resolving the problem (of our stagnant economy) is for the nominal exchange rate to fall” Weale has made markets suspicious that the BoE may actively weaken GBP in what is a bit of a breakaway from their usually conservative rhetoric.
'We don’t see this happening outright, but given how vulnerable the pound is at present, it doesn’t take much to give it an extra nudge downwards. Policy makers are certainly proving quite tactful at the moment in their wording but we think that is as far as it will go,' Poole added.
Sterling has come under growing pressure so far this year amid concerns about the strength of the UK economy, especially in comparison to tentative improvements in the eurozone.
Jane Foley, a strategist at Rabobank, said: ‘The road to recovery is set to be slow and painful and the current loss of faith in the pound is not without good reason'.
The Japanese yen fell even further, off 0.6% to 94 yen per US dollar, after the G20 meeting ended without any real censure of Japan’s policies to weaken the currency.
ITV (ITV.L) was the biggest riser, up 3% to 120p on news reports of a bid for the company