The pound hit a six-month low against the dollar last night as it headed for its worst month since the mini-Budget crisis of last September amid fears of a recession.
Sterling dropped by about half a cent to as low as $1.2157 as pressure mounted on the currency in the wake of last week’s decision by the Bank of England to leave interest rates on hold.
And while many observers believe rates in the UK have peaked, it is thought there could be further hikes in the US, boosting the dollar.
The pound has fallen 4pc against the greenback so far this month – putting it roughly in line with the decline in the same month last year.
It reflects the UK’s deteriorating economic outlook, with a monthly PMI business survey last week showing output falling at its sharpest pace since January 2021 and GDP figures showing the economy shrank by 0.5pc in July.
The pound hit a six-month low against the dollar last night as it headed for its worst month since the mini-Budget crisis of last September (file image)
That weakness helped persuade the Bank to slam the brakes on interest rate rises last week after 14 hikes in a row.
In contrast, robust growth in America has left experts betting that rates are more likely to rise in the US than in the UK.
The Federal Reserve also left rates on hold last week.
But the Fed’s signal that rates will stay higher for longer has sent the dollar soaring this month while US bond yields are at their highest levels since 2007.
Investment bank JP Morgan boss Jamie Dimon yesterday made clear the concerns at what might happen should the Fed end up hiking rates to 7pc amid a combination of weak growth and high inflation.
‘Warren Buffett says you find out who is swimming naked when the tide goes out,’ Dimon said.
‘That will be the tide going out.’
Sterling’s weakness is a far cry from the start of the year when it was hailed as the strongest performer among the G10 group of major currencies.
The pound spiked to more than $1.31 in July. But experts at Goldman Sachs and Nomura now think it could dip to $1.18.
Joe Tuckey, head of FX analysis at Argentex, said: ‘Just eight weeks ago, sterling was continuing its impressive rally fuelled by solid economic data, and a steadfastly hawkish Bank of England hinting at three more rate hikes in the fight against stubborn inflation.
‘Since then, a very poor PMI, and a suite of other weaker data has diminished confidence in the pound, and more importantly driven the BoE to be far more cautious over rates, as evidenced so clearly last week when the bank decided not to hike.’
Kit Juckes, head of FX strategy at Societe Generale, said sterling was on course to be the weakest of the G10 currencies this month. The fall in the pound comes a year after it slipped by 3.98pc over the course of September 2022.
That sell-off was caused by then prime minister Liz Truss’s disastrous mini-Budget, which saw sterling dive to a record low of less than $1.04 before bouncing back.