Author: Medha Singh
(Reuters) – The pound hovered near three-month lows against a stronger dollar on Wednesday, after falling sharply in the previous session following data that showed UK inflation falling.
Sterling fell 0.1% to $1.2795 after touching its lowest level since early August at $1.2719 on Tuesday, after data showed regular wages for British workers rose at the slowest pace in the third quarter pace for two years, confirming the Bank of England’s confidence that inflation pressures will continue to ease.
The BoE last week cut interest rates for the second time since 2020 and said the Labor government’s first budget would lead to higher inflation and economic growth.
Persistent inflation in the UK has so far forced the BoE to cut interest rates slower than the eurozone or US central banks, helping the pound to outperform against the dollar this year.
However, sterling could become vulnerable if the market starts to price in further interest rate cuts by the BoE.
Traders are currently pricing in only a 15% chance of another 25 basis point rate cut in December.
“Risks remain towards a dovish sell-off and consequent negative impact on sterling, although lower interest rates may take time to re-rate as markets remain cautious in assessing the inflationary effects of the budget,” said Francesco Pesole, strategist at ING FX.
The pound was unchanged at 83.31 pence per euro.
The currency has hit a more than six-month high against other major currencies, fueled by bets that future US President Donald Trump’s tax and tariff policies could spark inflation and prompt the Federal Reserve to sluggish the pace of interest rate cuts or even pause them.
