Turbulent times for the pound

Daily Currency Update

Sterling started the week on the backfoot once again. Last week the Bank of England raised rates by 0.25% and raised their inflation forecast to 10% by the last quarter of this year. Furthermore, comments from Bank of England governor Andrew Bailey pointed towards a potential recession in the UK which caused Sterling to weaken significantly against the USD and EUR.

The preliminary GDP data from the UK will be released on Thursday and will give us our first indication of whether a recession is likely. The theme of Sterling weakness has continued this week, with GBP/USD dropping to 23 month lows of below the $1.23 handle and GBP/EUR followed suit dropping below €1.17.

Political woes for Boris Johnson are likely adding further downside pressure to the pound. In the local elections the Conservative party lost almost 500 seats across Britain following the backlash over parties during the pandemic and the cost of living crisis. Johnson admitted that it had been a “tough night” for his party. Some MPs within his party have submitted letters of no-confidence in the Prime Minister.