(Updates prices, adds comment)
By Julien Ponthus
LONDON, Nov 11 (Reuters) – The pound sterling fell to its lowest level against the dollar on Thursday as the UK economy appeared to be losing momentum and spike in US inflation boosted the greenback while wagering on that the Federal Reserve would raise interest rates faster than expected.
Data released by the Office for National Statistics showed that the UK economy grew 0.6% in September, but estimates for the previous months have been revised downward so the economy is still smaller than it was in February 2020.
“Recent UK growth data has done little to help the pound during a weak period,” commented IG market analyst Joshua Mahony.
The pound sterling fell to its lowest level since December 2020 at $ 1.3365 in morning trade and was unable to rebound during the session.
At 1614 GMT it was trading 0.13% to $ 1.3385.
At its monetary policy meeting in November, the Bank of England left its key rate unchanged at 0.1% after previously signaling that it could raise it.
Markets are now pricing in a high probability of a rate hike in December, but uncertainty remains high. .
ING market economist James Smith said he believed the slowdown in the UK economy will not have much of an impact on BoE policymakers, who consider job recovery a top priority.
“It’s a tight decision between a December and February rate hike, although we think the former is more likely – especially if the employment data brings good news to the committee,” he said on a client note.
Tighter monetary policy would help boost the UK currency, say economists.
“The anticipation and eventual implementation of a rate hike should allow sterling to offset its recent losses,” said Dean Turner, economist at UBS Global Wealth Management. Foreign exchange derivatives markets expect further weakness in the pound as the cost of options to protect against further downturns is at its highest level since the 2016 Brexit referendum.
Against the euro, the pound lost 0.1% at 85.66 pence.
The dispute between Great Britain and the European Union after Brexit over trade with Northern Ireland is also annoying investors.
The Irish Foreign Secretary said Thursday that comments from the UK Brexit Minister suggest that there is still some time to come to resolve the trade difficulties before the UK tries to scrap some of the post-Brexit deals.
(Reporting by Julien Ponthus; Editing by Gareth Jones and Andrea Ricci)