LONDON: The British pound tumbled on Thursday to a 21-month low against a buoyant US dollar that also hit multi-year peaks against both the Japanese yen and euro.
At 1419 GMT, sterling was down 0.9% against the dollar at $1.2429, after earlier hitting its lowest level since July 2020 at $1.2416.
Against the euro, the pound was down 0.4% at 84.54 pence.
“In the face of a powerful dollar bull trend, GBP/USD has crumbled,” ING analysts said in a note.
Expectations of aggressive Fed tightening this year have sent the yield on US 10-year notes over 50 basis points higher this month, in turn pushing the dollar index to its highest level since 2002.
The Bank of England’s Monetary Policy Committee looks set to lift its policy interest rate for the fourth consecutive meeting next week, although expectations for further tightening continue to be scaled back.
“If the BoE once again focuses on the coming growth slowdown and the softer medium-term inflation outlook at market-implied rates, this would reaffirm our view that it will not hesitate to pause its hiking cycle as growth data deteriorate further,” Morgan Stanley analysts wrote.
Money markets are currently pricing in around 150 basis points of further tightening by the end of the year, the equivalent of six 25 basis point rises.
Morgan Stanley expects just two more 25 basis point rises in 2022 - in May and June - before the central bank takes a pause in response to slowing growth.
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