CURRENCIES: British Pound Slides To 2-month Low As Rate-hike Hopes Fade

By William Watts and Sara Sjolin, MarketWatch Features Dow Jones Newswires

Dollar mixed versus major rivals

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The pound dropped to a two-month low versus the dollar on Tuesday, slipping below $1.27 after Bank of England Gov. Mark Carney ruled out an imminent rate increase and extending losses as worries emerged over Prime Minister Theresa May's ability to strike an agreement that would allow her Conservatives to maintain a minority government.

Sterling tumbled to $1.2621, plumbing levels last seen on April 17, after trading as high as $1.2758 earlier in the session. It traded at $1.2738 late Monday in New York.

Initial pressure came after Carney, in a speech Tuesday morning to bankers at Mansion House, said (http://www.marketwatch.com/story/boe-chief-carney-too-early-to-lift-interest-rates-2017-06-20) "now is not yet the time" to begin tightening monetary policy. After data last week showed U.K. inflation had soared to 2.9% in May, investors started to speculate about when the central bank would step in to control rising consumer prices. Sterling started rising against the dollar after that inflation data, topping the $1.28 level.

"Carney's warning that 'now is not the time' to tighten should hardly be a surprise, given his record of favoring looser monetary policy, but it does reiterate the MPC's preference for looking through the current high levels of inflation for the time being," said Neil Wilson, senior market analyst at ETX Capital, in a note.

At the BOE's Monetary Policy Committee meeting last Thursday, three out of eight members unexpectedly voted in favor of a rate hike. Economists had only expected one policy maker to favor an increase.

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"Different members of the MPC will understandably have different views about the outlook and therefore on the potential timing of any Bank Rate increase. But all expect that any changes would be limited in scope and gradual in pace," Carney said in his speech.

"Whatever happens, monetary policy will be set to return inflation sustainably to target while supporting as best it can the necessary adjustments in the economy," he added.

Losses were extended after news reports said talks between the Conservatives and Northern Ireland's Democratic Unionist Party weren't going well. The BBC (http://www.bbc.com/news/uk-politics-40339330) quoted an unnamed senior DUP official who said the party couldn't be "taken for granted."

The Conservatives lost their majority in a general election earlier this month but remain the largest party in the House of Commons.

"Whether a deal gets done in the next 24 hours or not, it seems that the talks are becoming more and more damaging for Theresa May as the hours tick by," said James Hughes, chief market analyst at GKFX Financial Services, in a note.

In other currencies, the euro fell to $1.1134 from $1.1150 late Monday.

The yen gained ground, with the dollar buying Yen111.47 compared with Yen111.53 on Monday.

The ICE Dollar Index , a measure of the U.S. unit against a basket of six major rivals, rose slightly to 97.751.

(END) Dow Jones Newswires

June 20, 2017 17:53 ET (21:53 GMT)