LONDON, Nov 8 Reuters - The pound held on Monday near five-week lows touched last week against the dollar and euro, pressured by ebbing rate hike bets and a possible British confrontation with the European Union over post-Brexit Northern Ireland trading arrangements.
The Bank of England kept rates on hold at 0.1% last week, but uncertainty remains high after they were wrong-footed last week by policymakers who kept rates on hold. Markets priced two rate hikes at the end of the year-end before the BoE meeting.
The decision sent the sterling to its biggest weekly loss against the dollar since August, while the euro fell the most since April.
The decision will have left many speculators licking their wounds as data for the week to last Tuesday showed $1.3 billion worth of bullish pound positions built up ahead of the BoE meeting.
The data from the U.S. Commodity Futures Trading Commission shows a decline from a net short a month ago as the BoE seemed to guide rate expectations higher.
The policy stance of the Fed and the European Central Bank have been clearly signalled and signposted by Sarah Hewin, senior economist at Standard Chartered, while the European Central Bank, Federal Reserve and the BoE had been more dovish than anticipated.
She said that the signals were very unclear for the BoE and that's why sterling took such a hit. There is uncertainty in policymaking from the BoE that is going to be limited to the sterling upside in the near-term. The pound went down against the dollar at 9.10 GMT at $1.349, holding just off a $1.3425 low on Friday. It was a five-week low and a shade off the one-year low of $1.3412 hit at the end of September.
It traded flat against the euro last week, going to fall as low as 85.950.
Sterling is also feeling some pressure from the rhetoric around so-called Article 16, which allows Britain or the European Union to take unilateral action if they deem the deal governing post-Brexit trade is hurting their interests.
Britain has threatened to invoke Article 16 around Northern Ireland trade arrangements, and Ireland"s foreign minister said on Sunday the UK government appeared ready to do so.
The EU feels that Britain wanted to collapse the talks by asking for what they know they can't get he added.
Risk reversals, derivatives that give investors the right to sell an asset, show higher demand for put options on the pound than for calls which allow holders to buy the asset.