By Josie Cox
Sterling dropped sharply Tuesday after Bank of England Governor
Mark Carney raised fresh concerns about low wage growth in the U.K.
and the impact that this may have on the central bank's plans to
raise rates later this year.
The currency fell by half a cent to the day's low of $1.6975
against the U.S. dollar as Mr. Carney adopted a dovish tone in a
speech to U.K. lawmakers. Later, it recovered slightly, to trade
around the $1.6990 mark, but was still down from its earlier level
of $1.7022.
Mr. Carney said the exact timing of rate rises would be driven
by data but that wage growth has been lower than expected. When the
bank does raise rates, Mr. Carney said, the move would be limited
and gradual. An overly early move would risk losing productivity
gains, he said.
Citigroup strategist Valentin Marinov said that Tuesday's
comments from Mr. Carney, as well as from Deputy Governor Charles
Bean, suggest that the views of the Monetary Policy Committee on
the economy are "far from unanimous."
"All that could mean than an early rate hike may not be a done
deal as yet," he said.
Equity markets, meanwhile, extended losses Tuesday, weighed by
disappointing German business confidence data after downbeat
economic growth figures had already cast a shadow over the region's
fragile recovery in the previous session.
The Stoxx Europe 600 was down 0.3% by midmorning, while
Germany's DAX lost 0.1%. The U.K.'s FTSE lost 0.3% and France's CAC
was broadly unchanged on the day.
Germany's Ifo Institute's lead indicator was at 109.7 in June,
underperforming expectations in a survey of economists by The Wall
Street Journal for a decline to 110.2 from the previous month's
110.4.
On Monday, data firm Markit said its composite purchasing
managers index for the euro zone--which measures activity across
both the manufacturing and services sectors--fell to 52.8 from 53.5
in May.
"The survey results are a reminder that the increases in
commodity prices earlier in the year and the recent rise in oil
prices may show up in consumer prices over the next two to three
months," Riccardo Barbieri, chief European economist at Mizuho,
wrote in a note.
Globally, Dubai saw one of the heaviest selloffs of any major
index, losing 8.5% and extending losses to 27% since hitting a
multiyear high early May.
Construction group Arabtec was the key driver of the losses,
tumbling more than 9.8% on news of the dismissal of hundreds of
employees following the resignation of the group's chief executive
officer last week.
In emerging markets, Russia's Micex rose 1.6%, spurred by
reports from Interfax that Russia's parliament would approve
President Vladimir Putin's request to rescind authorization for
military force in Ukraine, lessening the tension surrounding the
region.
Emerging market currencies had already gained, with the U.S.
dollar hitting its lowest level since January against the Russian
ruble, after separatist leaders in Ukraine agreed Monday to join a
government-declared cease fire as a first step toward peace
talks.
By midmorning, the dollar was trading at 33.867 against the
ruble.
The dollar edged lower against other emerging market currencies
too, trading down 0.3% against the Turkish lira and 0.4% lower
against the South African rand.
While the price of gold generally falls amid calming
geopolitical tensions, the precious metal rose 0.5% Tuesday, to
$1,324.80 an ounce.
Analysts said this was a symptom of a weaker U.S. dollar
encouraging investors to seek alternative investments.
Markets in the U.S. were indicated to open marginally lower on
Tuesday, with the S&P 500 seen falling 0.25%. Changes in stock
futures, however, aren't always accurately reflected in market
moves after the opening bell.
Write to Josie Cox at josie.cox@wsj.com