Pound plummets to lowest value against the US dollar since 2009
The pound has fallen to its lowest value against the US dollar since 2009.
Sterling rose in the morning to a value $1.43257 before Bank of England chief Mark Carney said now was not the time to raise interest rates. Carney also signalled he was some way off from voting for a rate hike. The pound has since dropped to $1.4135, its lowest for just under seven years.
Economists at Citi said Carney's comments were "consistent with our view that the MPC are likely to keep rates on hold for an extended period." They the first rate increase will not come until mid-2017.
RBS economists have pushed their expectations back from August this year to February 2017. They said:
Governor Carney’s speech today is the catalyst for our revised forecast – his assessment of the outlook is more economy-bearish and disinflationary. Whilst we would normally hesitate to change a Bank Rate forecast in response to a single speech (the scars from the Governor’s June 2014 warning that ‘rates could rise sooner than markets expect’ are still visible!), this time is different: the Governor’s assessment of the risks now points in the same direction as our own and the financial markets’.
The pound began dropping steeply toward the end of last year against both the dollar and the euro as inflation remained low and the Bank of England continuously pushed back its inflation forecasts.
Market expectations of the first interest rate hike have moved from the December 2016 to March 2017 since the beginning of this year. There were also signs the economy was losing steam with retail sales remaining subdued over Christmas and pay growth falling.
Meanwhile, the Federal Reserve hiked rates in December.