Sterling slumps to lowest since March 2020 on BOE rate hike doubts

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(Bloomberg) – The pound fell to its lowest level against the dollar since March 2020 as traders eyed a widening divide between the Bank of England and Federal Reserve rate hike cycles.

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Britain’s currency slid more than 1% to touch $1.20, bringing year-to-date losses to more than 11%. It matched that decline against the euro at 86.82 pence, its weakest since May 2021.

The pound came under pressure from a resurgent greenback after higher-than-expected US inflation for May fueled expectations of more aggressive Fed tightening this week.

Concerns are growing that the BOE may need to take a more cautious approach to raising rates after Monday’s data showed a surprise contraction in the economy in April. The pound also faces political risks such as uncertainty over the fate of the deal with the European Union over Northern Ireland.

Diverging approaches from central banks could be seen this week, with the Fed and BOE expected to announce rate decisions. Nomura International Plc currency strategist Jordan Rochester predicts BOE officials will avoid more aggressive tightening, such as a 50 basis point hike, due to the focus on weak consumer confidence.

“A disappointing Fed could provide minimal support for the pound at current levels, but the big question is whether a dovish revaluation in UK money markets will impact the currency at this time,” analyst Simon Harvey said. currencies at Monex Europe Ltd., which recommends a long euro to pound swap.

(Updated prices.)

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