2023-09-25 11:59:29
Sterling fell to a six-month low against the dollar and a four-month low against the euro on Monday, as concerns across asset classes hit the already battered currency. the reassessment of the Bank of England’s rate outlook by the markets.
The BOE kept rates on hold last week, for the first time since December 2021, amid signs of slowing economic growth.
Market prices ahead of that meeting had reflected expectations that another 25 basis point rate hike was all but certain for 2023, if not at this specific meeting, but, on Monday, expectations for another hike rates this year were around 40%.
This underlines a reversal of the trend earlier this year, when the pound was boosted by expectations that the Bank of England would continue to raise rates longer than the European Central Bank and the Federal Reserve.
On Monday, the British pound fell 0.25% to $1.2213, its lowest level since March 2023, before settling at $1.2242.
It is on track for a monthly loss of 3.4%, the biggest since September last year, when it was battered by a strong dollar and the economic policies of then-Prime Minister Liz Truss.
On Monday, the euro briefly reached 87.03 pence, its highest level since May, and remained stable slightly below that level.
“What we are seeing today is that concerns over Chinese real estate have spilled over into the European session, weighing on equity markets and subsequently the euro and sterling,” said Nick Rees , foreign exchange market analyst at Monex Europe.
“This builds on what happened last week with the Bank of England,” Mr Rees added, “markets are now thinking about what the Bank sees in the economy.
Global stocks fell on Monday, partly as property developer China Evergrande said it was unable to issue new debt due to an ongoing investigation into its main domestic subsidiary.
Data on UK business activity released on Friday, the day after the Bank of England’s decision, showed businesses had a much tougher September than expected, with the Buyer’s Management Index falling to its lowest level since the pandemic lockdown in January 2021.
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