The pound has fallen to its lowest level against the dollar since the start of the Covid pandemic amid growing concern about the strength of the British economy.
The pound fell more than a penny against the dollar to trade below $ 1.20 in foreign exchange markets for the first time since March 2020, as traders in the city reacted to conflicting market figures and the prospect of a new referendum on Scottish independence.
The currency also lost ground as the dollar strengthened to a new two-decade high in anticipation of the US Federal Reserve raising interest rates on Wednesday to cope with rising inflation, possibly up to 0.75 percentage points. The Fed last raised interest rates by 1994.
Compared to the euro, the pound fell more than 1% to about 86.81p, its lowest level since May last year.
Analysts said the pound sterling was under stronger dollar pressure after unexpectedly high US inflation figures fueled expectations of the US central bank’s more aggressive rate hikes. With the UK forecast to fall near the bottom of the world growth league tables next year, the Bank of England could be forced to take a more cautious approach when setting rates on Thursday. , although inflation has risen to its highest level since the early 1980s.
Threadneedle Street is expected to raise interest rates by 0.25 percentage points on Thursday, raising its base rate to 1.25%.
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The latest fall in the currency comes after the UK unemployment rate rose unexpectedly to 3.8% in the three months to April, from 3.7% in March. City economists had forecast a decline of up to 3.6%.
Against a backdrop of negative developments for the pound’s strength, analysts said Nicola Sturgeon’s announcement on Tuesday that he was preparing for a new referendum on Scottish independence also weighed on the currency. The Prime Minister of Scotland said on Tuesday that she would update Holyrood on her plans “very soon”.
Simon Harvey of the financial trading company Monex Europe told Reuters: “If I had to isolate the downward movement in an event, I would probably say that the risk of Scottish independence was the drop that broke the glass “.