The pound touched its lowest level since early July on Thursday as the currency’s sell-off since Donald Trump’s re-election as President continued.
Sterling fell to as low as $1.2631, having lost nearly three per cent since Trump’s election victory last week. Other currencies have also recorded declines against the dollar, with the euro falling to its lowest level in around a year and the Japanese yen at its weakest position since July.
The dollar index, which measures the greenback against a basket of global currencies, was hovering around one-year highs yesterday.
“The FX market tends to concentrate on one theme at a time, and right now that is dollar dominance,” Kathleen Brooks, research director at XTB, said.
The dollar has strengthened as markets anticipate that Trump’s victory will mean the US Federal Reserve is forced to adopt a slow and steady approach to interest rate cuts.
The President-elect has threatened to impose a blanket 10 per cent tariff on all imports, rising to 60 per cent for imports from China. Economists think these measures will force up inflation in the US, slowing the pace of interest rate cuts.
Some economists also think that Trump’s plans to cut taxes will support US growth, providing a further impediment to interest rate cuts.
Higher interest rates benefit domestic currencies because international investors are able to earn a higher return on their investments.
Francesco Pesole, an FX analyst at ING, said “the dollar will stay strong throughout next year” as a result of Trump’s domestic and trade agenda.
Concerns about the potential implications of Trump’s trade policy come amid signs that underlying price pressures remain. Figures out yesterday showed that core prices rose 0.3 per cent in October for the third consecutive month.
Brooks at XTB said that the pound could fall to as low as $1.25 as a result of the dollar’s ascendancy. “There has been a structural shift towards a stronger dollar that is destroying everything in its path,” she said.