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Sterling steadies near 21-month low against strong dollar
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(Reuters) – The British pound edged higher on Thursday but was still trading near a 21-month low against a buoyant U.S. dollar that has hit multi-year peaks against both the Japanese yen and euro.
(Reuters) – The British pound edged higher on Thursday but was still trading near a 21-month low against a buoyant U.S. dollar that has hit multi-year peaks against both the Japanese yen and euro.
At 0747 GMT, sterling was up 0.1% against the dollar at $1.25615. It had earlier traded below $1.25 for the first time since July 2020.
Against the euro, the pound was up 0.1% at 84.07 pence.
“In the face of a powerful dollar bull trend, GBP/USD has crumbled,” ING analysts said in a note.
“Perhaps the only thing supporting cable (pound/dollar) at 1.25 is the fact that it has come a long way quite quickly.”
Expectations of aggressive Fed tightening this year have pushed yields on U.S. 10-year notes around 45 basis points this month, in turn sending the dollar index to a five-year high.
Meanwhile, the Bank of England’s Monetary Policy Committee is scheduled to meet next week and looks set to lift its policy interest rate by 25 basis points, marking the fourth consecutive meeting in which rates have been increased.
Morgan Stanley analysts expect the deteriorating growth outlook to push the BoE to slow its pace of tightening.
“If the BoE once again focuses on the coming growth slowdown and the softer medium-term inflation outlook at market-implied rates, this would reaffirm our view that it will not hesitate to pause its hiking cycle as growth data deteriorate further,” Morgan Stanley analysts wrote.
Money markets are currently pricing in around 145 basis points of further tightening by the end of the year, the equivalent of almost six 25 basis point rises.
Morgan Stanley expects just two more 25 basis point rises in 2022 – in May and June – before the central bank takes a pause in response to slowing growth.
(Reporting by Samuel Indyk; Editing by Bradley Perrett)
The British pound, often referred to as GBP, is the official currency of the United Kingdom. It is one of the world's oldest currencies still in use and is subdivided into 100 pence.
Monetary policy refers to the actions taken by a country's central bank to control the money supply and interest rates to achieve macroeconomic objectives such as controlling inflation, consumption, growth, and liquidity.
The Federal Reserve, often called the Fed, is the central banking system of the United States. It regulates the U.S. monetary and financial system and implements monetary policy.
A currency exchange rate is the value of one currency for the purpose of conversion to another. It indicates how much of one currency you need to spend to buy a unit of another currency.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage of the principal amount. They are influenced by monetary policy and economic conditions.
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