Sterling falls to 5-month low on dominant Dollar

12 Apr 2024

The Pound fell to a five-month low on Friday even though the UK economy is on track to depart its shallow recession, according to data, as all key currencies were being pressured by a dominant Dollar.

Sterling declined 0.48% at $1.249, a low not seen since mid-November. The currency was on track for a 1.1% weekly loss as hot US inflation data lowered expectations of Federal Reserve easing, providing a boost for US bond yields and the greenback.

The Euro fell 0.12% against the Pound at 85.34 pence, the day after the European Central Bank indicated a rate cut in summer was still likely.

The UK’s economic output rose by 0.1% in February in monthly terms, aligned with forecasts, whilst the reading for January was upwardly revised, signalling an exit from recession at the beginning of the year.

Inflation and labour data is due to be published next week, Reuters news agency reports.

The Bank of England was likely gearing up for an imminent rate cut, while the Federal Reserve is expected to refrain from action until it achieves a more stable control over inflation, said senior FX strategist at Rabobank, Jane Foley.

“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 commented.

As it stands, money markets are pricing in around 52 basis points of rate cuts by the Bank of England in 2024, and a 39% chance of an initial rate cut taking place in June, as per LSEG data.

This is a decline from around 68 basis points priced in for this year at the beginning of the week, the Reuters report goes on to say.

However, higher-than-forecast UK inflation has led to markets reducing expectations of the first Fed rate cut even more, with the first one repriced to September from June.

In addition, the dollar index, measuring the currency against six major rivals, reached its highest since Friday, November, at 0.5% 105.82.