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Sterling slips against charging dollar

·2-min read
FILE PHOTO: Illustration photo of British Pound Sterling and U.S. Dollar notes

By Tom Wilson

LONDON (Reuters) -Sterling slipped against a rampaging dollar on Wednesday, lingering near 2-1/2 year lows as its brief resurgence a day earlier petered out.

The pound fell as much as 0.8% at $1.14185, its lowest since March 2020. A fall below $1.1413 would take it to its weakest level since 1985, according to Refinitiv data.

Sterling had reached as high as $1.1609 a day earlier, as media reports offered new details about how incoming Prime Minister Liz Truss is planning to tackle Britain's growing energy crisis before losing steam amid doubts about what effect the plans would actually have.

Analysts said gains for sterling as a result of Truss's plans were not certain, with questions remaining over how they would gel with the Bank of England's tightening monetary policy.

"The net impact of support measures may not be too straightforward as they may easily get mixed in with the implications for BoE policy," ING analysts wrote in a note.

Truss' plans might cause Britain's surging inflation to slow, but it was too soon to say what that means for interest rates, the BoE's chief economist told lawmakers on Wednesday.

Against the euro, sterling lost 0.7% to 86.62 pence.

Truss is set to announce plans on Thursday to help households cope with the surge in gas and electricity bills caused by Russia's invasion of Ukraine. Some financial analysts have put the cost of Truss's reported plan to freeze power tariffs at 100 billion pounds or higher, on top of her 30 billion pounds of tax cut promises.

The fall in the pound against the dollar was also a result of the stronger greenback which hit a 24-year high versus the Japanese yen on Wednesday and was testing a two-decade high against the euro.

U.S. economic data reinforced the view that the Federal Reserve will continue to tighten aggressively, and the dollar index, which measures the greenback against six major peers, hit a fresh 20-year high of 110.69.

The pound has slid 15% against the dollar this year as British inflation surges to double digits and growth grinds to a halt, with consumers and businesses hit by soaring energy prices.

It will not regain its losses against the U.S. dollar anytime soon as steep interest rate increases from the Bank of England fail to offset an expected recession and increased government spending, a Reuters poll on Wednesday forecast.

Sterling was expected to hover near $1.16 in one and three months time, the Sept. 1-6 poll of nearly 60 foreign exchange strategists predicted.

(Reporting by Tom Wilson, Editing by William Maclean and Andrew Cawthorne)