News and Analysis

British pound faces further decline after worst month in a year

The British pound had its worst month against the US dollar in a year in September, and strategists aren’t showing much optimism for the rest of the year as growth expectations wane.

Over the month, the pound fell 3.75% against the dollar, marking a decline not seen since the end of last summer.

Back then, the British currency was initially shaken by political and economic uncertainty, followed by a short-term “mini-budget” announced by former Prime Minister Liz Truss, which pushed the pound to record lows.

The pound also dropped 1.26% against the euro last month, marking its weakest performance since December 2022.

Currency rates have been influenced over the past two years by expectations about interest rates, with higher rates typically making a currency more attractive for foreign investment.

Market expectations for the maximum interest rate in the United Kingdom rose to as high as 6.5% during the summer as the country grappled with high inflation, which remained at very elevated levels, while consumer prices in other developed economies started to decline.

In September, the Bank of England paused its run of 14 consecutive rate hikes, leaving its key rate at 5.25%, a level that economists and market observers quickly indicated as a likely peak.

Source: CNBC.com

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