Sterling has fallen below $1.30 as traders expect the Bank of England to slash interest rates if the UK economy underperforms.
The pound tumbled in early trading, sinking 0.5 per cent from $1.3044 to $1.2996 this morning before the release of UK GDP data.
It came after one of the Bank of England’s monetary policy committee members said over the weekend that he would vote to cut interest rates this month if data does not show the UK economy lifting.
Gertjan Vlieghe told the Financial Times he needed to see “an imminent and significant improvement” in UK data not to vote to lower interest rates from 0.75 per cent to a record low 0.5 per cent.
The MPC voted 7-2 against cutting rates in its last meeting of 2019. But fellow external MPC member Silvano Tenreyro last week said she would also back a rate cut soon if the UK economy continues to struggle.
The pound’s poor performance sent the FTSE 100 up 0.55 per cent to 7,629.4 points, boosting exporters.
“Given the state of sterling, it is a surprise that the FTSE isn’t even higher,” Spreadex analyst Connor Campbell said.
He also cited the UK’s impending departure from the EU as a reason for the pound’s fall today, with the EU questioning whether it can reach a trade deal with the UK by the deadline of December 2020.
“Siphoning the life from the currency is the unstoppable march towards the Brexit deadline on 31 January, and the awareness of the difficult trade negotiations that sit the other side,” he said. “This on top of the lingering impact of Mark Carney’s rate cut hints from last week.”
GBP’s drop followed a jump in Asian stocks this morning as traders look ahead to Wednesday’s crucial meeting between the US and China, when US President Donald Trump is due to sign the first phase of a trade deal.