Sterling falls to lowest level since September 2020 versus dollar

© Reuters. FILE PHOTO: Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company’s headquarters in Vienna, Austria, November 16, 2017. REUTERS/Leonhard Foeger//File Photo

(Reuters) – Sterling fell on Monday to its lowest since September 2020 against a strengthening dollar and edged lower versus the euro, while money markets scaled back their bets on future monetary policy tightening from the Bank of England (BoE).

The greenback climbed as investors sought safety due to uncertainties over the global growth outlook, rising against the euro despite French President Emmanuel Macron’s comfortable election victory over far-right rival Marine Le Pen.

Money markets are currently pricing around 150 basis points (bps) of additional BoE rate hikes by year-end from 160 bps on Friday. [IRPR]

The pound tumbled in the previous session, hurt by a weak economic outlook and less hawkish Bank of England expectations.

BoE looked mainly concerned about risks of a possible recession and a slowdown in the labour market, analysts said after comments from BoE Governor Andrew Bailey last Thursday.

Data released on Friday showed sliding retail sales and consumer confidence approaching all-time lows.

The pound fell 0.8% to its lowest since September 2020 of $1.2725 after setting on Friday the biggest daily drop since September 2020.

“The deterioration in risk sentiment, risks of a dovish repricing in the BoE rate expectations and potentially some re-emergence of negative Brexit-related headlines continue to pose downside risks to the pound in the coming weeks, and a test of the 1.2500 support cannot be excluded,” ING analysts said in a research note.

Britain does not rule out taking further steps to address problems in Northern Ireland caused by post-Brexit arrangements, Prime Minister Boris Johnson said last Friday.

Analysts mentioned concerns about risks of a possible political crisis as lawmakers triggered an investigation into whether Johnson had misled parliament over Downing Street parties during lockdown.

After apologising for his conduct, Johnson denied deliberately misleading parliament, which is a resigning matter.

The pound was flat against the euro at 84.15 pence per euro.