Traders bet next rate hike will be the last as pound hits 15-week low against the dollar
The pound hit a 15-week low against the dollar yesterday as traders bet that an expected interest rate hike this week will be the last.
Sterling dipped to as low as $1.2366 ahead of a Bank of England decision on Thursday, which is widely forecast to see rates rise from 5.25 per cent to 5.5 per cent.
The currency could take a further hit if the Bank indicates at this week’s meeting of the Monetary Policy Committee (MPC) that the hiking is over.
‘Any hints on Thursday that the UK policy rate was something like “sufficiently restrictive” would most likely hit the pound,’ said ING Bank’s Chris Turner.
Economists at US investment bank Goldman Sachs said a pause in rate hikes as soon as this week may even be a ‘possibility’.
Bank of England governor Andrew Bailey (pictured) believes inflation is heading for a ‘quite marked’ decline by the end of the year
But on balance, they still expect to see the MPC go for another increase, the 15th in a row.
More likely, they suggest, is that the committee will ‘hold rates steady’ at the following meeting in November.
An end to rate rises could provide a glimmer of hope for borrowers battered by a series of hikes since December 2021 as the MPC battled to bring down inflation, which peaked at 11.1 per cent last autumn.
Higher interest rates already mean that millions of homeowners are facing steep rises in monthly repayments, and business surveys suggest they could be pushing the UK towards recession.
Inflation, at 6.8 per cent, remains well above the Bank’s 2 per cent target, and figures tomorrow are expected to show it climbed back above 7 per cent in August due to rising fuel prices.
Meanwhile, wages are still going up at record rates – another potential driver of inflation.
But Bank of England governor Andrew Bailey believes it is still heading for a ‘quite marked
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