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Pound hits five-month low as dollar rallies on lower Fed bets
Global Banking and Finance Review
Company
By Anna Pruchnicka
LONDON (Reuters) -Sterling fell to a five-month low on Friday even as data showed the British economy was on course to exit its shallow recession, with all major currencies coming under pressure from a dominant dollar.
The pound was down 0.48% at $1.249, the lowest since mid-November. It was heading for a weekly loss of 1.1%, after hot U.S. inflation data this week slashed Federal Reserve easing expectations, boosting U.S. bond yields and the dollar.
The euro was down 0.12% against the pound at 85.34 pence, a day after the European Central Bank signalled a summer rate cut was still likely.
Britain’s economic output grew by 0.1% in monthly terms in February, in line with forecasts, while January’s reading was revised higher, pointing to an exit from recession in early 2024.
The bigger domestic news that could inform Bank of England (BoE) pricing is not due until next week in the form of inflation and labour data.
Rabobank senior FX strategist Jane Foley said the BoE was likely preparing for a cut soon, even as the Fed likely holds fire until it gets inflation under better control.
“They are laying the groundwork for a summer move, whether that be June or August. It does seem likely that we will have something,” she said.
Money markets are currently expecting about 52 basis points of interest rate cuts by the BoE this year and they see a 39% chance of the first cut arriving in June, according to LSEG data.
That is down from around 68 bps priced in for 2024 at the start of the week, after a Financial Times article by BoE official Megan Greene, which warned about persistence in UK inflation, caused traders to reel in their bets.
Yet the higher-than-expected U.S. inflation has caused markets to scale back expectations of the first Federal Reserve cut even further, with the first rate cut repriced from June to September.
The dollar index, which tracks the currency against six major peers, hit its highest since November on Friday at 105.82, up 0.5%.
(Reporting by Anna Pruchnicka in London; additional reporting by Harry Robertson; Editing by Susan Fenton)
The Bank of England is the central bank of the United Kingdom, responsible for issuing currency, managing monetary policy, and overseeing financial stability.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power.
A currency exchange rate is the value of one currency for the purpose of conversion to another, determining how much of one currency you can exchange for another.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage of the principal amount.
Foreign exchange, or forex, is the global marketplace for trading national currencies against one another.
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