Sterling fell sharply against the yen and also weakened against the dollar and euro on Thursday, as investors focused on divergence in monetary policies after gilts and sterling sold off last week .
Money markets have anticipated a rate hike of around 50 basis points by the Bank of Japan in 2025 [IRPR] after Gov. Kazuo Ueda said Wednesday the bank would debate whether to raise interest rates next week.
The Bank of England is expected to ease monetary policy, causing the pound sterling to fall 0.77% against the Japanese currency to 190, hitting a new 1.5-month low of 189.72.
In Britain, the large supply of government bonds and concerns over the UK’s fiscal challenges put pressure on asset prices last week, sending UK borrowing costs to their highest level since 2008.
Yields on 10-year UK government bonds fell 2 basis points (bps) after falling 14.5 bps the day before due to weak inflation data from both sides of the line. ‘Atlantic. Bond yields move inversely to prices.
Analysts said it was too early to be optimistic about a rebound in sterling, but the bond market rally was positive.
“The pound has found some short-term stability, which is justified, and the inflation numbers have been helpful from that perspective,” said Paul Mackel, global head of currency research at HSBC .
“However, fiscal dynamics will remain in focus and we still see sterling struggling against the dollar,” he added.
British inflation slowed unexpectedly last month, and core measures of price growth, tracked by the Bank of England, fell sharply, official data showed.
The pound fell 0.25% to $1.22. It reached $1.2097 on Monday, its lowest level since November 2023.
The US dollar stabilized on Thursday as investors focused on the inauguration of Donald Trump.
Britain’s economic output returned to growth in November, but rose less than expected.
Markets have increased their bets on future rate cuts from the Bank of England, pricing the price at 59 basis points in 2025. [IRPR]
The Bank of England should move quickly to cut rates given signs the British economy is slowing, rate-setter Alan Taylor said, adding he expected the central bank to cut interest rates four times in 2025.
The single currency rose 0.3% to 84.31 pence. It reached 84.50 pence on Wednesday, its highest level since mid-September.
