Sterling slides as safe-haven demand fades

Sterling’s recent slide has largely reflected the further fading of safe-haven demand and signs that Mark Carney’s forthcoming governorship of the Bank of England might result in looser monetary policy than under his predecessor. Fears of a credit rating downgrade of UK sovereign debt and the impact of a potential UK exit from the EU might have also weighed on the pound, although we doubt that either event would have a major lasting impact on sterling’s value. Looking ahead, sterling may continue to weaken if tensions ease further in euro-zone government bond markets. But we think it more likely that global safe-haven demand will resurge soon, thereby propping up the pound.