Sterling falls to five-year low after Carney’s comment, disappointing construction data
The pound slumped to its lowest level in five years against the dollar after poor construction data and Bank of England governor Mark Carney's rate comments.
Sterling fell over a percent against the dollar to trade as low as $1.4710, or its weakest since June 2010.
Construction suffered its worst fall in more than a year in January, when it contracted 2.6 per cent, way below economists' expectations. However, this conflicted with other industry surveys, which suggest that the construction sector had a much better start to the year.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "There is a very real risk that construction output will contract in the first quarter of 2015 and be a drag of [economic] growth."
But it's good news for Carney, who yesterday warned low inflation outside of the UK and a strong pound could push back a rate hike.
"It may be appropriate to take into account persistent external deflationary forces arising from the combination of continued foreign low inflation and the protracted effects of sterling’s strength on the prices facing U.K. consumers if those forces were to intensify," Carney said during a speech in Sheffield.
However, sterling has continued to climb against the euro, and it hit a seven-year high earlier this week.
The euro is still feeling the heat from the central Bank's "biggest bazooka", its €1.1 trillion (£720bn) bond-buying programme, which was launched earlier this week. The programme, due to end in September 2016, will see the European Central Bank (ECB) buy around €60bn in public and private bonds each month.
Meanwhile, the greenback rally returned, with the weak sterling and euro pushing the dollar index (which measures the dollar against a basket of foreign currencies) back towards its recent high of 100.