Pound dips as BoE's Saunders hints at rate cut

Sterling finished the week on a down note after one of the most hawkish rate-setters on the Monetary Policy Committee signaled that a rate cut was more likely than the opposite.

Speaking in Barnsley, the Bank of England's Michael Saunders reportedly said that a reduction in Bank Rate is "quite plausible" even if the UK clinches a withdrawal agreement with the European Union, as the uncertainty surrounding th future arrangements weighs on sentiment.

His remarks sent sterling to an intraday low of 1.2273 against the US dollar although by 1644 BST it had largely recovered and was only 0.11% lower to 1.2315.

Nonetheless, for the week, the pound had given back 1.6% of its value against the Greenback.

On the other side of the coin, the US dollar was knocked off its perch by comments from Federal Reserve bank of Philadelphia, Patrick Harker, who reportedly said that he could endorse a further cut in short-term rates, albeit not just now.

His words pulled the US dollar index down from just beneath its 52-week highs to 99.0790 for an intraday loss of 0.05%.

Also dampening sentiment towards the US currency, the latest personal spending data from the Department of Commerce revealed that consumption had slowed from a month-on-month pace of 0.5% in July to 0.1% for August (consensus: 0.3%).

Together with a downwards revisions to the reading for July, that shortfall in outlays was likely to see economists revise their forecasts for US consumption growth in the third quarter, said Pantheon Macroeconomics's Ian Shepherdson.

"[...] The bigger picture here perhaps is that the broader trade war is making people nervous. Either way, the consumer boom is coming to an end, rapidly," he said.

The impact of the trade war on consumers was corroborated by the University of Michigan's consumer confidence survey for September, the results of which were also published on Friday and which showed that the uncertainty was offsetting solid income growth among middle-income households.

In the background, the US dollar was 0.21% stronger against the Japanese yen at 108.0375 while euro/dollar was moving higher by 0.22% to 1.0944 despite a weaker than expected reading on euro area industrial sentiment for September and polling surveys in Germany that showing the Greens running neck-and-neck with Angela Merkel's CDU at 27.0%, even as the Social Democrats continued to lose ground.

The European Commission's Eurozone industrial confidence index slumped from a reading of -6.3 for August to -9.8 in September (consensus: -5.8).