Sterling fell on Monday to its lowest since September 2020 against a strengthening dollar and edged lower versus the euro, while money markets scaled back their bets on future monetary policy tightening from the Bank of England (BoE).
The dollar climbed to a two-year high versus its rivals and was on track for its single biggest daily gain in more than six weeks as a wave of risk aversion swept through global markets, boosting the greenback’s safe haven appeal.
Money markets are pricing around 150 basis points (bps) of BoE rate hikes by year-end, including more than 25 bps from next week’s policy meeting, from 160 bps on Friday. IRPR
BoE seemed mainly worried about risks of a possible recession and a slowdown in the labour market, analysts said after comments from BoE Governor Andrew Bailey last Thursday.
Optimism among British manufacturers has fallen at its fastest pace since the onset of the coronavirus crisis as orders slowed and prices leapt, a survey showed, adding to signs of a slowdown in the economy.
“While dovish comments from the BoE continue to weigh, today’s moves are mainly about a risk-off environment that is boosting the safe-haven assets at the expense of higher-risk currencies,” Matthew Ryan, senior market analyst at Ebury said.
“Markets appear concerned about new lockdowns in China, Fed monetary tightening, and their impact on the economy,” he added.
The pound fell 0.9% to its lowest since September 2020 of $1.2718 after setting on Friday the biggest daily drop since September 2020.
“Risks of a dovish repricing in the BoE rate expectations and potentially some re-emergence of negative Brexit-related headlines continue to pose downside risks to the pound in the coming weeks, and a test of the 1.2500 support cannot be excluded,” ING analysts said in a research note.
Britain does not rule out taking further steps to address problems in Northern Ireland caused by post-Brexit arrangements, Prime Minister Boris Johnson said last Friday.
The pound fell 0.2% versus the euro at 84.31 pence, after hitting its lowest since April 1 at 84.37.
Analysts mentioned concerns about risks of a possible political crisis as lawmakers triggered an investigation into whether Johnson had misled parliament over Downing Street gatherings during the pandemic lockdown. After apologising for his conduct, Johnson denied deliberately misleading parliament, which is a resigning matter.
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