The pound just had its worst week in nine months, and there may be more trouble in store for it.
Sterling may remain under pressure in the coming weeks following the Federal Reserve’s recent hawkish policy announcement, according to ING Bank NV. The pound fell 2.2% against the dollar last week, the biggest such decline since September 2020, as the US central bank signalled it may raise interest rates earlier than previous indicated, fuelling broad gains in the greenback.
The spread of the so-called delta variant of the coronavirus in Britain also may weigh on sterling, ING strategists led by Chris Turner wrote in a note to clients. Political tensions between the UK and the European Union over British meat exports to Northern Ireland is another factor that could prove a headwind for sterling, according to the Dutch bank.
Bank of England outlook
Furthermore, the UK currency may not get much support from the Bank of England’s policy review on Thursday, according to the strategists.
“The next few weeks could be a vulnerable period for cable,” they wrote in the note dated June 18. “Concerns about the spreading Delta variant should prevent any further hawkish repricing of the market outlook for the Bank of England.”
The pound has slid more than 3% from a three-year high of $1.4250 reached on 1 June. The UK currency fell 0.9% on Friday, falling for a sixth day.