LONDON (Reuters) - Sterling hit a seven-month low to the euro on Wednesday, losing ground to renewed strength in the single currency after European Central Bank President Mario Draghi hinted the days of the bank’s stimulus programme are numbered.
Compared to a recovery against the dollar after its 2 percent drop following the British elections, the pound has been unable to appreciate significantly against the euro.
That speaks to reduced political uncertainty and improving economic prospects for Europe, which investors see as outshining that of Britain’s as the country heads into a two-year period of exit negotiations with the European Union.
By 0757 GMT, sterling was 0.3 percent lower at 88.80 pence per euro, its lowest level since Nov. 9.
It was less than 0.1 percent higher at $1.2819.
“There’s a vulnerable political and vulnerable economic backdrop (for the UK) and you layer on the more constructive attitude with respect to politics and economics in the euro zone and therefore we get euro sterling trending higher,” said Rabobank strategist Jane Foley.
While Brexit negotiations have kicked off and Prime Minister Theresa May has brokered a deal to form a government, a number of factors are playing on investors’ minds as they consider the long-term outlook for Britain.
May’s future as prime minister has come in to question after her election gamble cost her a parliamentary majority, while a split has emerged at the Bank of England over whether to raise record low UK interest rates.
BoE Deputy Governor Jon Cunliffe on Wednesday signalled that now is not the time to raise interest rates, siding with his boss Mark Carney.
Speculation mounted last week that Governor Carney’s grip on decision-making at the BoE was weakening when chief economist Andy Haldane said he might break ranks and join dissenters who voted this month for Britain’s first rate hike in a decade.
Editing by Ed Osmond