LONDON, Aug 18 — The British pound weakened against the dollar today after policy minutes from the Federal Reserve boosted the US currency and traders worried soaring UK inflation would mean higher interest rates and a weaker British economy.
The latest inflation figures, which were released yesterday and came in above 10 per cent, increase pressure on the Bank of England (BoE) to bring down prices and also ramp up fears of a sharp economic slowdown.
The pound was down 0.1 per cent against the dollar at US$1.204 (RM5.39) and earlier fell to US$1.1995. Versus the euro, however, it edged up to 84.39 pence.
“The main observation on yesterday was how big the reaction in the rates markets was compared to almost no reaction in sterling,” said Adam Cole, chief currency strategist at RBC Capital Markets.
British two-year government bond yields surged to their highest since November 2008 on Wednesday, and stayed close to this level today. Sterling fell 0.4 per cent against the dollar after the inflation data release.
In light of the modest sterling reaction, Cole questioned whether the prospect of higher rates was being outweighed by questions over the credibility of monetary policy longer term.
Investors are fully pricing in a 50 basis point hike at the BoE’s September meeting, according to data from Refinitiv, with a projected peak in the bank rate of 3.75 per cent now seen in May 2023. Earlier this week, money markets had seen the bank rate peaking earlier in March.
The Conservative Party leadership race to succeed British Prime Minister Boris Johnson remains a headwind for sterling, with frontrunner Liz Truss’ spending plans and potential plans to review financial regulators under the spotlight. — Reuters
