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London - The pound headed for its steepest quarterly decline against the euro since 2010 and, according to Morgan Stanley, the slide is unlikely to end any time soon amid signs the U.K. economy is slowing.
Sterling was on course for its first drop versus the euro in nine quarters and its worst performance versus the common currency since the period ended September 2010. The pound was set for a quarterly decline against the dollar.
The UK currency has been weighed down by uncertainty on when the Bank of England will tighten policy, with money markets not pricing in any increase in interest rates until after November 2016.
Sterling has struggled to regain its footing amid investor concern that the turmoil in emerging markets and slide in global equities will hurt Britain’s economy.
There’s further weakness in store for sterling against the euro, according to analysts at Morgan Stanley, led by Hans Redeker, the London-based head of global currency strategy.
“Euro-sterling has further upside potential as the UK economy shows increasing signs of slowing,” they wrote in a note dated September 30. With May’s general election out of the way “a more realistic assessment of planned fiscal consolidation and its impact on an economy” would be clearer, they added.
They said the pair could reach 75.85 pence, a level last seen in February, and added that the risks of Britain leaving the European Union “have increased, which we feel are not adequately priced in GBP-denominated markets.”
The pound strengthened for the first time in seven days Wednesday, gaining 0.2% to 74.08 pence per euro as of 10:35. That pared its decline since June 30 to 4.4%. Sterling touched 74.37 pence per euro on Tuesday, its weakest level since May 7, the day of the UK general election.
The UK currency was little changed at $1.5145, having declined for eight previous days. It has dropped 3.6% this quarter.
