Sterling Falls as Investor Nerves Boost Dollar

LONDON (Reuters) – Sterling fell on Thursday as another bout of risk aversion sent investors snapping up dollars and selling currencies deemed riskier when the outlook is so uncertain.

The pound fell 0.3% to $1.1856, not far from the more than two-year low of $1.1807 hit on Tuesday.

Against the euro, where the pound has fared much better in recent weeks, the British currency was unchanged at 84.61 pence.

Sterling has fallen sharply in 2022 despite the Bank of England raising interest rates repeatedly. That’s because the jump in rates across the developed world has unnerved investors and sent them seeking safety in the U.S. currency, which tends to be the safe-haven of choice given its role in the global economy and its liquidity.

A higher-than-expected reading of U.S. inflation on Wednesday fired up bets on a possible 100 basis point rate rise by the Federal Reserve this month, further rattling markets and supporting the dollar.

Traders also worry about the outlook for the UK economy, with concerns inflation in Britain could end up persistently higher than elsewhere even as economic growth grinds to a halt.

The current leadership race to succeed Boris Johnson as prime minister and leader of the Conservative Party whittled down the candidates to six on Wednesday, with another round of voting due Thursday. Uncertainty over who will win and the economic policies they will pursue has also cast a shadow over the pound.

“Another vote today will trim the list of candidates further. For now, the impact on GBP is set to remain quite limited though, and EUR/GBP should largely remain a function of EUR dynamics,” ING analysts wrote.

Analysts say the strong dollar and the weak euro, which has been driven lower by concerns about soaring natural gas prices and their impact on the regional economy, matter more for the pound, not the leadership race.

(Reporting by Tommy Reggiori Wilkes; Editing by Raissa Kasolowsky)