The British pound experienced a significant decline against the U.S. dollar in September, making it the worst month for the currency in a year. Analysts and strategists are expressing little optimism for the remaining months of the year, as growth expectations continue to weaken.
Throughout September, the pound fell by 3.75% against the dollar, marking a decline not seen since the end of last summer. The currency faced a series of challenges, starting with political and economic uncertainty, and further exacerbated by the announcement of a “mini-budget” by former Prime Minister Liz Truss, which caused the pound to hit a record low.
Additionally, the pound also experienced a slide of 1.26% against the euro last month, representing its weakest performance since December 2022.
The fluctuation in exchange rates over the past two years has largely been influenced by expectations regarding interest rates. Higher interest rates generally make a currency more appealing for foreign investment.
During the summer, market expectations for the peak U.K. interest rates reached as high as 6.5%, as the country grappled with persistently high inflation levels. However, consumer prices in other developed economies began to cool down, further complicating the situation.
In September, the Bank of England decided to pause its streak of 14 consecutive rate hikes, keeping its key rate at 5.25%. This decision led economists and market observers to speculate that this level may represent the peak rate for the foreseeable future.
As the pound continues to face challenges, experts suggest that its weakened state is likely to persist throughout the rest of the year. The uncertainties surrounding Brexit, coupled with the global economic landscape, are contributing to the lack of optimism. It remains to be seen how these factors will shape the future of the British pound in the coming months.
More detail via CNBC here… ( Image via CNBC )