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Sterling strikes seven-month lows amid calls for further weakness

Sterling struck seven-month lows against the dollar, before later recovering some of its losses, as a Bank of England policymaker said the pound may need to weaken further.

During morning trading on Monday, the pound fell 0.5pc to $1.5438 – its lowest level since July last year – before recovering to trade around $1.5483.

Sterling’s slide came as Martin Weale, a senior Bank of England policymaker, said on Saturday that the pound may need to weaken further, which would help to make exports cheaper and spur growth.

“It may be that high levels of uncertainty and a reluctance to take on new risks have stood in the way of exporters seeking new markets and domestic producers doing what is needed to displace imports,” Mr Weale said in a speech.

“Provided the calmer atmosphere we have seen since the summer is sustained, we may see further benefits of the depreciation.”

With the Bank of England appearing comfortable with sterling’s drop, traders suggested that more losses are likely.

“Policymakers are hoping that a weaker sterling will help revive the economy,” said John Hardy, currency strategist at Saxo Bank.

“Safe-haven inflows have dried up and economic weakness means there is little reason to buy sterling. We should see a gradual drift towards $1.50.”

Sterling has already come under pressure amid anxiety over Britain’s stuttering economy and the Bank of England forecasting higher inflation and anaemic growth.

Last week, the pound suffered its biggest weekly loss since early June 2012 after a weak retail sales report for January added to gloom about the UK economy and the currency.

But, analysts pointed out that some relief could be provided later this week from the latest unemployment figures.

“The downside risk continues, although later this week another monthly fall in UK unemployment is expected, which if realised will continue to baffle economists, and may be enough to give sterling some brief respite from the rampant selling that it has faced in the past few weeks,” said Lee McDarby of Investec Corporate Treasury.

However, with concerns over the economic outlook persisting, hedge funds and investment managers are ditching sterling.

The Financial Times reported that figures from the US Commodity Futures Trading Commission show that more speculators are shorting the pound than buying it for the first time in five months.

Betting against sterling is second only in volume to the yen. The latter has sunk against other currencies as a result of aggressive monetary and financial policies to reflate the Japanese economy.

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