Pound faces its worst month since last year’s mini-budget crisis amid recession fears
- Sterling fell by around half a cent to a low of $1.2157 due to the pressure.
The pound hit a six-month low against the dollar last night as it headed for its worst month since last September’s mini-budget crisis amid fears of a recession.
Sterling fell about half a cent to a low of $1.2157 as pressure mounted on the currency following last week’s decision by the Bank of England to leave interest rates unchanged.
And while many observers believe rates in the UK have peaked, it is thought there could be further hikes in the US, boosting the dollar.
The pound has fallen 4% against the dollar so far this month, putting it roughly in line with the decline in the same month last year.
It reflects the UK’s deteriorating economic outlook: a monthly PMI business survey last week showed output fell at its fastest rate since January 2021 and GDP figures showed the economy contracted by 0.5 percent in July.
The pound hit a six-month low against the dollar last night as it headed for its worst month since last September’s mini-budget crisis (file image)
That weakness helped persuade the Bank to curb interest rate increases last week after 14 consecutive increases.
In contrast, strong growth in the United States has left experts betting that rates are more likely to rise in the United States than in the United Kingdom.
The Federal Reserve also left rates unchanged last week.
But the Federal Reserve’s signal that rates will stay higher for longer has sent the dollar soaring this month, while U.S. bond yields are at their highest levels since 2007.
JP Morgan investment bank chief Jamie Dimon yesterday made clear concerns about what could happen if the Federal Reserve ended up raising rates to 7 percent amid a combination of weak growth and high inflation.
“Warren Buffett says that when the tide goes out you find out who swims naked,” Dimon said.
“That will be the tide that is going out.”
The pound’s weakness is a far cry from that at the start of the year, when it was hailed as the best performer among the G10 group of major currencies.
The pound soared to over $1.31 in July. But experts at Goldman Sachs and Nomura now believe it could fall to $1.18.
Joe Tuckey, head of currency research at Argentex, said: “Just eight weeks ago, sterling was continuing its impressive recovery driven by strong economic data and a firmly hawkish Bank of England hinting at three more rate hikes in the fight against inflation. persistent inflation.
“Since then, a very poor PMI and a series of other weaker data have dampened confidence in the pound and, more importantly, led the Bank of England to be much more cautious on rates, as This was clearly demonstrated last week when the bank decided not to raise rates.’
Kit Juckes, head of currency strategy at Societe Generale, said sterling was on track to be the weakest currency in the G10 this month. The pound’s drop comes a year after it fell 3.98 percent over the course of September 2022.
That sell-off was sparked by then-Prime Minister Liz Truss’s disastrous mini-Budget, which saw sterling fall to a record low of less than $1.04 before recovering.