A shift in the Bank of England's focus from inflation to a darkening economic outlook became the latest reason to sell the pound.
The UK currency fell almost 3% versus the US dollar this week, its worst performance since late September and the biggest drop among major currencies globally. After sinking the most in a month on Thursday, sterling looks set for another dip toward parity, with banks including Mitsubishi UFJ Financial Group Inc., Bank of America Corp and Cooperatieve Rabobank UA predicting a fall below $1.10 by the end of the year.
The Bank of England's struggle to get ahead of inflation has been a key driver of pound weakness all year and the latest selloff clips the pound's recovery from the UK's disastrous mini-budget just over a month ago. Investors now say the growing divergence in the approach to inflation at the BOE and the Federal Reserve is a reason to shun the UK currency.
Both central banks raised rates by 75 basis points this week. But Jerome Powell's willingness at the Fed to drive ahead with more aggressive hikes than traders envisaged contrasts with his UK counterpart Andrew Bailey's insistence that, with the nation toppling into a two-year recession, tightening expectations are overdone.
For the pound, that means there's more pain in store, according to Derek Halpenny, head of research for global markets EMEA at MUFG. “Growth that cannot withstand many further rate hikes, as is implied by the BoE, in circumstances of more sustained rate hikes elsewhere is an increasing risk,” he wrote in a note.
The UK currency fell almost 3% versus the US dollar this week, its worst performance since late September and the biggest drop among major currencies globally. After sinking the most in a month on Thursday, sterling looks set for another dip toward parity, with banks including Mitsubishi UFJ Financial Group Inc., Bank of America Corp and Cooperatieve Rabobank UA predicting a fall below $1.10 by the end of the year.
The Bank of England's struggle to get ahead of inflation has been a key driver of pound weakness all year and the latest selloff clips the pound's recovery from the UK's disastrous mini-budget just over a month ago. Investors now say the growing divergence in the approach to inflation at the BOE and the Federal Reserve is a reason to shun the UK currency.
Both central banks raised rates by 75 basis points this week. But Jerome Powell's willingness at the Fed to drive ahead with more aggressive hikes than traders envisaged contrasts with his UK counterpart Andrew Bailey's insistence that, with the nation toppling into a two-year recession, tightening expectations are overdone.
For the pound, that means there's more pain in store, according to Derek Halpenny, head of research for global markets EMEA at MUFG. “Growth that cannot withstand many further rate hikes, as is implied by the BoE, in circumstances of more sustained rate hikes elsewhere is an increasing risk,” he wrote in a note.
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