LONDON: Sterling fell to a 14-month low against a buoyant dollar on Friday, on track for a fourth straight week of losses as investors unwound bets that the Bank of England would raise interest rates any time soon.
The gap between the interest rate-sensitive two-year UK gilt yield and its US counterpart has narrowed to its lowest since October 2013, making the pound less attractive to investors.
The gap has narrowed after the Bank of England said on Wednesday that inflation was likely to slow further, pushing back bets on the first post-crisis interest rate hike to the end of 2015 with some now pricing in a move in the first quarter of 2016.
That raises the prospect that the UK will be beaten as the first major central bank to raise interest rates since the financial crisis - an accolade it had been widely expected to win until the summer.
The US Federal Reserve is expected to raise rates in the middle of 2015.
The pound fell to $1.5609, its weakest since September 2013, after US retail sales beat expectations and pushed up the dollar and US yields. Sterling trade-weighted index was down 0.35 percent at 86.5, a one-month low.
"Sterling continues to trade very poorly and there doesn't seem much good support for the pound against the dollar until the very distant $1.5350 area," said Chris Turner, head of currency strategy at ING.
Against the euro, sterling was trading near a four-week low of 79.565 pence per euro, despite euro zone growth data doing little to alter expectations that the European Central Bank will have to resort to quantitative easing in the coming months.
With global stocks dropping, the 10-year gilt yield touched its lowest level in more than two weeks at 2.14 percent.
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