LONDON: The pound dropped below $1.30 on Tuesday, falling for a fourth straight day against the dollar amid doubts over the Bank of England’s policy path and increased political uncertainty.
Sterling fell 0.2% against the US dollar to $1.29805, well within striking distance of a November 2020 low of $1.2973 hit last week.
Against the euro, the pound was 0.3% lower at 83.08 pence , retracing all the gains seen post the European Central Bank decision on Thursday.
Even as British yields have extended gains in recent days, investors have become increasingly unsure whether the Bank of England will follow some of its global counterparts in raising interest rates aggressively to curb inflation.
Data last week showed British consumer price inflation jumping in March to 7%, its highest in three decades, but money markets have slightly dialled down expectations for how much the BoE will raise interest rates in the rest of the year.
Scotiabank analysts, led by chief FX strategist Shaun Osborne, think that BoE rate expectations are still “well overdone”.
“GBP remains on the backfoot against the continued climb in US yields and the fact that there is little more that markets can price in this year in terms of BoE hikes,” Scotiabank said.
Money markets are currently pricing in around 146 basis points of further tightening this year, which would take the base rate to the 2.00%-2.25% range.
The market focus is on a speech from BoE Governor Andrew Bailey on Thursday, even as data showed hedge funds have increased their short bets on the pound to their highest levels since the start of the year.
Meanwhile, British House of Commons Speaker Lindsay Hoyle will let lawmakers vote on whether to refer for investigation claims that British Prime Minister Boris Johnson misled parliament over his breach of COVID-19 rules, a Sun reporter said.
Johnson is set to apologise to parliament at 1530 GMT on Tuesday for breaching lockdown rules.