Sterling drops to 2-week lows as BOE doubts rise

LONDON - 20 October 2017:Britain's pound skidded to a two-week low on Friday amid doubts over the outlook for Bank of England interest rate moves and concerns over Brexit.

Sterling has been pushed lower this week by a combination of weak data and comments from BoE policymakers that markets have interpreted as dovish.

The pound is down to $1.3122 against the dollar, its lowest level since Oct. 9. It has fallen more than 1 percent for the week.

Although investors are pricing in an 80 percent chance of a first 25 basis-point interest rate hike will come at the Bank of England's next policy meeting on Nov. 2, doubts are growing about future rate hikes.

"UK yields have fallen back as traders mull the possibility that the Bank of England might step back from a rate rise in November given some of this week's data," said CMC Markets analyst Michael Hewson.

Retail sales volumes, a key component of the economy, fell 0.8 percent in September, dragging quarterly growth to its weakest annual rate since 2013, data showed on Thursday, raising concerns that the economy was too weak to stomach a rate hike, a first since 2007.

Policymakers also struck a cautious note.

Bank of England (BoE) Deputy Governor Jon Cunliffe said on Thursday it was not clear that rates needed to rise soon, showing at least two of the central bank’s nine policymakers are unlikely to vote for a hike in November.

"Cunliffe prompted surprise with some comments casting doubt on a November rate hike," RBC analysts wrote in a note. " We still think GBP is overpriced for tightening given that process does not appear to be happening."

Cunliffe's caution was joined by fellow BoE deputy governor Dave Ramsden earlier this week who said he did not think a rate hike was likely to be needed.

Investors are also closely following a two-day European Union summit. On Thursday evening British Prime Minister Theresa May appealed to EU leaders to help her silence critics at home and break a deadlock in the Brexit talks.