Pound hits five-month low as dollar gains

by Jonathan Adams
pound sterling

The pound was down 0.48% at $1.249, the lowest since mid-November

Sterling dropped to a five-month low on Friday even as data showed the UK economy was on course to exit recession, with all major currencies coming under pressure from a strong dollar.

The pound was down 0.48% at $1.249, the lowest since mid-November. It was heading for a weekly loss of 1.1%, after strong U.S. inflation data this week cut Fed easing expectations, boosting U.S. bond yields and the dollar.

The euro was 0.12% lower against the pound at 85.34 pence, a day after the ECB signalled a summer rate cut was still likely.

UK’s economic output grew by 0.1% in monthly terms in February, in line with forecasts, while January’s figure was revised higher, pointing to an exit from recession in early 2024.

The bigger domestic news that could inform BoE pricing is not due until next week in the form of inflation and labour data.

According to Rabobank senior FX strategist Jane Foley, the BoE was likely preparing for a reduction soon, even as the Federal Reserve likely holds until it gets inflation under better control.

They are laying the groundwork for a summer move, whether that be June or August. It does seem likely that we will have something, she added.

Money markets are presently expecting around 52 bps of interest rate cuts by the Bank of England this year and they see a 39% probability of the first cut coming in June, as per LSEG data.

That is down from nearly 68 bps priced in for 2024 at the start of the week, after a Financial Times article by BoE official Megan Greene, which cautioned about persistence in UK inflation, caused traders to pare their bets.

Yet the higher-than-expected U.S. inflation has caused markets to cut expectations of the first Fed cut even further, with the first rate cut repriced from June to September.

The dollar index, which tracks the currency against six major rivals, hit its highest since November on Friday at 105.82, up 0.5%.

Disclaimer: The opinions expressed by our writers are their own and do not represent the views of Trading and Investment News. The information provided on Trading and Investment News is intended for informational purposes only. Trading and Investment News is not liable for any financial losses incurred. Conduct your own research by contacting financial experts before making any investment decisions.

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