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Pound extends losing run on Brexit sparked action

Edinburgh - The pound headed for a fourth monthly decline against the dollar amid speculation the Bank of England will try to soften the economic blow of Brexit with further easing of its monetary policy.

Sterling has fallen versus every major peer since the June 23 referendum on European Union membership, while speculators have boosted bearish bets for the past eight weeks and are now the most pessimistic ever on the UK currency.

Even so, the pound’s losses have been tempered as some data covering the summer months beat economists’ forecasts. GfK SE’s household confidence index, published today, rose in August, making up some of the ground lost in the aftermath of the EU vote.

That helped sterling rally for the first time in five days.

The respite may not last, with Lloyds Banking Group Plc’s business barometer falling this month and firms the most somber about trading possibilities since 2011.

The BoE has already moved to counter the fallout of Brexit by cutting its key interest rate to a record and restarting government-bond purchases - just as investors anticipate a boost to US interest rates.

Yield grab

“Monetary policy expectations and yield differentials” are driving the pound, said Simon Derrick, chief currency strategist at Bank of New York Mellon in London, adding that he “wouldn’t be surprised” if it fell to about $1.20 by year-end.

“We’re in this world where we’re forced to go seeking for yield,” he said. “When you start talking about sterling, you have to start looking at it through that prism.”

The pound rose 0.5% to $1.3143 as of 12:35, leaving it down 0.7% this month and 12% weaker since the UK’s referendum. It reached a three-decade low of $1.2798 on July 6. Sterling gained 0.4% to 84.83 pence per euro, set for a third monthly slide.

Economists in a Bloomberg survey this month predicted the BOE would cut rates again in November, even as they saw inflation breaking through the central bank’s 2% target just months later, helped by the weaker pound.

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