Sterling hit a 10-month low against the dollar on Friday and a one-month dip versus the euro. The divergence between the UK economy, seen in need of some monetary easing, and the US, where up cycle of interest rate rises is not over, has driven the latest downward move for the pound.
On Thursday first-quarter UK GDP growth was revised down and other data showed house prices declined this month and consumer confidence was at a six month low. On Wednesday, another report showed retail sales falling at their fastest for 22 years. See more on effect of Thursday's data on Sterling
Interest rates in the UK have been at 4.75 per cent since August 204 but the flow of weak data has led to hopes of a rate cut next month, with speculation for a cut this month intensifying.
Last night however in the US, the Federal Reserve raised rates by a quarter-percentage point to 3.25 per cent and reiterated its “measured pace” mantra for tightening the country’s monetary policy.
Sterling fell from its $1.7920 level before the Fed’s announcement to $1.7726 at one point before recovering to $1.7757, a fall of 1.4 cents. Having hit a low of £0.6792, sterling was trading at £0.6788 against the euro, which itself also suffered from weaker interest rate expectations than the US.
The single currency slid from $1.21 to a low of $1.2026 before recovering to $1.2057, a 0.4 cent fall since the Fed’s rate news.