Pound Sterling fell sharply against the dollar on Wednesday, falling to its lowest level in six weeks, as a sharper-than-expected slowdown in UK inflation relieved pressure on the Bank of England to maintain raising interest rates.
The pound fell as much as 1.5% to $1.198, a level that was last seen in early January.
The actions came after statistics showed that UK inflation fell to a five-month low of 10.1 percent in January, down from 10.5 percent the previous month.
Reuters polled economists and predicted a dip to 10.3%.
Opposite the US
The currency’s slide indicates rising market certainty that the Bank of England is about to suspend its monetary tightening cycle.
It comes as strong US economic data boosts expectations that the Federal Reserve may have more work to keep inflation under control.
“There appears to be a schism developing between what’s going on in the UK and what’s going on in the US,” said Jordan Rochester, a Nomura foreign exchange strategist.
“There’s no other way to phrase it: US inflation came in high, but the UK may be in a situation where inflation falls faster than predicted as consumers cut down on spending.”
In contrast with the UK, US inflation was higher than predicted in January, with consumer prices growing at an annual pace of 6.4 percent against an estimate of 6.2 percent.
As a result, the currency rose, while futures markets were priced at a higher peak interest rate.
The world’s de facto reserve currency has fallen 8.8 percent in the last four and a half months, but has risen so far in February as a result of a recent run of solid US economic statistics.
Rate Increase This Year
The Bank of England boosted interest rates by half a percentage point to 4% earlier this month, but warned that it might be the last.
The pound has been pulled down by a “dovish shift in policy advice from the BoE” and a “hawkish repricing of Fed policy,” according to MUFG strategists.
The weakening of the sterling aided London’s FTSE 100 stock index, which reached an all-time high of 8,000 points for the first time on Wednesday.
The index, which is dominated by international corporations that generate the majority of their revenue outside of the United Kingdom, benefits when the sterling falls in value.
Sterling’s recent loss keeps it well above its all-time low of less than $1.04 set in September at the height of the gilts crisis, when former Prime Minister Liz Truss’ borrowing plans and a pensions sector problem weakened investor confidence in the UK.
For More Stocks And Investment Related News, Click Here.