FX Round-up: Sterling endures torrid time after dovish Carney

Sterling endured a torrid time against the dollar, yen and euro today after Bank of England governor Mark Carney stuck a dovish tone in the central bank's financial stability report (FSR).

At 17:08 BST, sterling was down 2.13% to $1.3004, down 1.43% to €1.1747 and off 3.06% to 132.097 yen. It fell markedly against commodity-backed issues, too.

In the FSR, Carney eased rules for banks to encourage continued lending in the wake of Brexit, but warned risks from the non-binding vote late last month had already started to crystallise.

It was on the back of this -- and against a backcloth of surging economic pessimism and an ebbing UK services sector -- that sterling dived to 31-year-plus lows.

Capital Economics reckoned there were good reasons to expect sterling to fall further, and all eyes were on next week's BoE Monetary Policy Committee meeting.

It commented that "ongoing economic and political uncertainty, as well as the backdrop of the UK's huge current-account deficit, would surely justify a bigger decline."

However, Michael Hewson, chief market analyst at CMC Markets UK, postulated that "despite the growing pressure on the pound one can't help feeling that the current sell-off seems overdone."

Market chatter of a BoE rate rise as early as next week might be regarded as premature, Hewson contended.

"The Japanese yen has continued to push higher which is likely to be a particular concern for the Bank of Japan, posting its biggest gains against the pound and its highest levels since 2012," he added.

Sterling has fallen more than 30% on the yen since last August, and 15% versus the greenback, both of which were likely to cause concern to BoJ and the US Federal Reserve.

The market is pricing in a possible loosening of monetary policy by BoE over the summer, but the amount and timescale is up for debate.

In the US, expectations for a rate rise have been pushed further out, due to both Brexit and shock non-farm payrolls data in May.

Meantime, the dollar turned in a robust performance on most major crosses today. At 17:08 BST, it was up 0.77% to €0.9034 and also rose versus commodity units. Against the yen it fell 0.97% to 101.57.

"Speculative positioning suggests that there is scope for some of sterling's weakness against the US dollar to be unwound in the near term, as shorts are covered," said Capital Economics.

"But, given our view of the relative prospects for US and UK monetary policy, we now expect the exchange rate to fall to $1.20 by end-2017."

Finally, San Francisco Federal Reserve president John Williams today played down the impact of Britain's decision to quit the EU on the United States' economy.

He referred to the uncertainty that surrounded the Brexit issue, commenting it was difficult to tell where things stand at the moment, and where they were heading, but assured that things are not as bad as they seem.