Pedro Gonçalves writes:
The pound fell by around 1.7% against the US dollar, its biggest weekly decline since July 2023. The pound has fallen 2.2 cents since the beginning of the week, reaching around $1.3146 at press time. If this trend continues, the pound could fall to levels not seen since February 2023.
The decline in currencies is due to a combination of global investors seeking safe haven assets and rising expectations for more aggressive interest rate cuts from the Bank of England. Analysts increasingly expect the central bank to cut rates sooner than previously expected, with Governor Andrew Bailey’s recent comments spurring the change.
Bailey suggested the central bank could become “a little more aggressive” and “aggressive” in cutting interest rates as inflationary pressures ease. This change in tone is weighing on the pound as markets readjust their expectations of British monetary policy.
Meanwhile, the US dollar strengthened, supported by its safe-haven status amid ongoing conflicts in the Middle East.
“We have always thought that once the BoE becomes more comfortable with the trajectory of inflation, it would signal a more aggressive rate cutting cycle. Mr Bailey’s comments are a clear move in that direction,” HSBC said. said Nick Andrews, senior currency strategist.
Capital Economics suggested that the pound’s sharp fall reflected a broader correction, with the pound likely to unwind from a period of overvaluation. Despite this, the pound remained weak on Friday amid hopes that BoE chief economist Hugh Pill’s speech later in the day could serve as a counterbalance to Bailey’s more dovish tone and help push the pound higher. started with a slight increase.