The British pound has weakened significantly, falling below $1.32 to its lowest level since April. This decline is fueled by a strengthening US dollar after the Federal Reserve’s recent rate cut and subsequent cautious remarks about future cuts, increased speculation of Bank of England rate cuts, and concerns surrounding the potential negative impact of the upcoming UK budget on economic growth.
- The British pound fell below $1.32, its weakest level since April.
- The US Federal Reserve lowered its fed funds rate by 25bps.
- Fed Chair Powell indicated another rate cut this year is not guaranteed.
- Traders have increased bets on BoE rate cuts.
- November’s budget could significantly hurt economic growth.
- Prime Minister Starmer did not rule out increases in income tax, national insurance, or value-added tax.
- The OBR is expected to downgrade the UK’s productivity growth forecast.
- A downgrade of productivity growth could create a £20 billion shortfall in public finances.
- Softer inflation data have reinforced expectations of monetary easing.
- BRC reported declines in food price inflation.
The combination of global monetary policy shifts and domestic economic uncertainties is weighing heavily on the British pound. Speculation about future interest rate cuts by the Bank of England, coupled with the potential for fiscal strain and lowered growth forecasts, paints a concerning picture for the currency’s near-term performance. These factors have created a situation where the pound faces considerable downward pressure.