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Sterling set for second weekly decline vs dollar as economic outlook weighs

reuters.com · 06/10/2022 06:12
Sterling set for second weekly decline vs dollar as economic outlook weighs

By Joice Alves

- Sterling fell on Friday against the U.S. dollar and was set for a second consecutive week of declines as Britain's gloomy economic outlook left investors on edge.

The pound slipped 0.35% versus the dollar to $1.2454 pence, not far from a three-week low touched earlier this week. GBP=D3

Financial markets are pricing in Bank of England rates hitting 2% by September's policy meeting and 3% by May 2023, up from 1% now as central banks battle surging inflation.

"Right now we would favour the dollar over sterling and could see sterling/dollar breaking down to 1.2350 next week," ING analysts said in a note to clients.

"The fact that sterling money markets still price a further 175bps of Bank of England tightening by year-end goes to show that investors struggle to buy into the idea of a pause anywhere," they added.

Sterling was little changed versus the euro at 85.04 pence EURGBP=D3 but was heading to its best week against the weakening single currency since April.

The euro weakened this week after the ECB ended a long-running stimulus scheme on Thursday and signalled it would deliver its first interest rate hike since 2011 next month, followed by a potentially larger move in September if inflation does not cool down. nL1N2XW0AB

Graphic: World FX rates in 2020http://tmsnrt.rs/2egbfVh

Graphic: Trade-weighted sterling since Brexit votehttp://tmsnrt.rs/2hwV9Hv

(Reporting by Joice Alves, editing by Emelia Sithole-Matarise)