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Sterling drops to lowest since Nov 2020 after UK inflation data
Global Banking & Finance Review®
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By Joice Alves
LONDON (Reuters) – Sterling dropped on Wednesday to its lowest level against the U.S. dollar since November 2020 as British consumer price inflation leapt to its highest level in three decades.
Raising doubts on how aggressive the Bank of England tightening measures will be, British consumer prices jumped to an annual rate of 7.0% in March, the highest since March 1992 and up from 6.2% in February.
Sterling fell to $1.2973 in early London trading, hitting its lowest level against the dollar since November 2020. It traded flat at $1.3004 at 0835 GMT.
Against the euro, it was flat at 83.32 pence.
Traders said that while it was not clear how aggressive the BoE will be with its monetary policy tightening this year, they ramped up bets that the U.S. central bank will accelerate its interest rate hiking. [FRX/]
“The pound has already slipped below $1.30 against the U.S. dollar and could fall further towards $1.25 if we see further aggressive action by the Federal Reserve,” said Michael Hewson, Chief Market Analyst at CMC Markets UK.
In order to tackle inflation, money markets are pricing in a 25 basis points Bank of England interest hike in May, and around 144 bps by December, though many strategists expect it to be less aggressive as the BoE forecasts economic growth will likely slow sharply this year as cost of living pressures mount.
“We think the BoE will try and strike a balance, raising rates at coming meetings to get policy on a more neutral footing, while keeping a watchful eye on how the consumer is holding up,” said Ambrose Crofton, Global Market Strategist at J.P. Morgan Asset Management.
(Reporting by Joice Alves; Editing by Toby Chopra)
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured annually and can impact economic decisions and monetary policy.
Monetary policy refers to the actions taken by a country's central bank to control the money supply and interest rates to achieve macroeconomic goals such as controlling inflation, consumption, growth, and liquidity.
A central bank is a national institution that manages a state's currency, money supply, and interest rates. It oversees the banking system and implements monetary policy to stabilize the economy.
Foreign exchange, or forex, is the global market for trading national currencies against one another. It determines the exchange rates and is essential for international trade and investment.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage. They are influenced by central bank policies and affect economic activity and inflation.
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