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Sep 16 - 11:55 AM

GBP/USD - COMMENT-Sterlings's 37-Year Lows Cast Spotlight On More 1985 Targets

By Paul Spirgel  —  Sep 16 - 10:55 AM

Sterling fell to a 37-year low of 1.1351 on Friday nL1N30N0VA after weak retail sales data nL8N30N0UN stoked UK inflation and recession fears, shifting focus to targets such as March 1985 lows starting at 1.1060 as markets doubt the BoE's ability to achieve a soft landing.

The pound also fell versus the euro, with EUR/GBP hitting a 19-month high at 0.8772, as the ECB is seen as more aggressive in lifting rates.

Despite the BoE's initial leadership among major economies normalizing policy after COVID, its less aggressive stance since March in the face of inflation near double-digits has punished sterling -- which is down 15.7% year-to-date, behind only the yen's 24.3% loss among currencies of G7 countries.

UK PM Liz Truss has proposed a cap on UK energy prices which, while bringing down inflation in the near-term is likely to keep price growth steady at higher levels for longer while the accommodation works through the economy.

With UK inflation-recession concerns boosted after the weak UK retail sales data, traders will focus on the March 1985 lows by 1.1060, 1.0805 and 1.0520 as the UK inflation becomes entrenched.

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Source:
Refinitiv IFR Research/Market Commentary

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