London's pound hits one-month low against dollar as uncertainty grows

London's pound hits one-month low against dollar as uncertainty grows

LONDON, Sept 20 Reuters - Sterling hit a one-month low against the dollar on Monday as a global sell off triggered by China's troubled Evergrande hit risk-oriented currencies while uncertainties about the Bank of England's monetary policy and surging gas prices also weighed.

At 0827 GMT, the pound was about 0.5% lower against the dollar at $1.3662, its lowest level since Aug 23. Aside from the euro, sterling was 0.32% down at 0.8561 pence, a level that has not been reached since Sept. 9.

A sell-off in Europe where the world's most indebted property developer China's Evergrande dropped to over 11-year lows and spreads around Asia with the pan-European STOXX 600 falling 1.90% and London's FTSE

Investors turned to the safe haven of the greenback which reached a four-week high, with the dollar index hitting 93.4.

What we are seeing is all risk currencies taking a hit across the board said Jeremy Stretch, head of the G 10 FX strategy at CIBC Capital Markets.

He added that domestic factors were also at play for the British currency, with the surge of gas prices causing an additional headwind.

Britain is considering offering state-backed loans to energy companies after wholesale gas prices soared, prompting big suppliers to ask for support from the government to cover the cost of taking on customers from companies that have gone bust.

Another headache for traders were the uncertainties linked with what could emerge at the Bank of England meeting about the future of monetary policy on Thursday.

The market had been expecting a relatively hawkish tone from the BoE, Stretch said, adding that risks to the economic recovery have been creeping up recently and that investors might reconsider long bets on a strengthening currency.

BoE rate-setters who might be tempted to vote for an early end of their COVID - 19 stimulus plans are likely to hold off for now, with a weak economy but rising inflation making for a tricky backdrop.

Last month Michael Saunders was the only Monetary Policy Committee member to vote for an early end of the British central bank's purchases of government bonds, on the basis that continued buying risked a more aggressive tightening of monetary policy in future.

Since then, BoE Governor Andrew Bailey revealed that four of the eight MPC members that voted last month - himself included - thought some initial conditions had been met to begin exploring the possibility of raising interest rates.