UK Markets closed

Sterling holds steady vs dollar near 35-year low

·2-min read
British pound coins are seen in this illustration

By Samuel Indyk

LONDON (Reuters) - Sterling was little changed against the dollar and the euro on Thursday, hovering above a 35-year low touched last week against the greenback as investors fret about the economic outlook and continue to favour the U.S. currency.

Sterling has been one of the worst performing major currencies in 2022, hit by expectations of a long recession, stubbornly high inflation and political instability.

New Prime Minister Liz Truss's plans to fund a mammoth energy support package by increasing borrowing have added to investor concerns about the long-term outlook for the British economy.

"There's a lot of talk about stagflation at the moment and the one place that has it right now is the UK economy," said Ben Laidler, global markets strategist at eToro.

"That's a big reason why the currency has done so badly this year."

By 0744 GMT, the pound was down 0.1% against the dollar at $1.1524, just above last week's 35-year low of $1.1407.

Against the euro, sterling was little changed at 86.495 pence.

The Bank of England (BoE) meets next week and is expected to raise its interest rate by at least 50 basis points (bps), possibly even 75 bps, as it looks to slow the rate of inflation.

Money markets are fully pricing in a half point rate rise at Thursday's meeting and currently imply around a 65% chance of a larger 75 basis point rise, according to Refinitiv data.

Data released on Wednesday showed consumer price inflation fell last month for the first time in almost a year. However, the core consumer price index, which strips out food, energy, alcohol and tobacco prices, rose to its highest since 1992.

The BoE releases its monthly survey on inflation expectations on Thursday, although economists are playing down the importance after the government announced a new energy support package after the fieldwork was completed.

"With the August survey responses having been collected prior to the government's announcement of the Energy Price Guarantee scheme, the results of the latest quarterly survey are likely to be seen as somewhat redundant," Lloyds Banking Group economist Hann-Ju Ho said in a note.

(Reporting by Samuel Indyk; Editing by Gareth Jones)