Pound set for biggest weekly fall this year

The pound is heading for its biggest weekly loss since the start of the year and its seventh consecutive week of losses on the back of weak UK economic growth and Donald Trump’s potential tariffs supercharging the value of the dollar.
Sterling is on course for its steepest weekly decline against the dollar since January, falling by 2 per cent to $1.267, the lowest level since August. The pound has not recorded a positive week against the dollar since September.
The dollar has climbed by more than 2 per cent this week against a basket of major currencies as investors anticipate higher inflation and fewer interest rate cuts will result from Trump’s planned tariffs on China and the rest of the world. The dollar index, a trade-weighted measure, hit a 15-month high earlier this week.
Matthew Amis, investment director at Abrdn, the asset manager, said there was “little reason for the recent pound slide to re-correct” after the UK’s latest economic growth numbers proved disappointing.
The economy grew by just 0.1 per cent in the three months to September, the slowest quarterly pace in a year and down from 0.5 per cent in the second quarter. The first estimate from the Office for National Statistics was lower than the 0.2 per cent forecast by the Bank of England.
“The UK’s growth story will need to be more compelling for markets to shift,” Amis said. The pound also slid by 0.4 per cent against the euro on Friday to €1.198, while the dollar surged to a two-year high against the single currency.
Since the US election result, the dollar has gained 1.4 per cent against the euro, 1.3 per cent against the pound and 0.8 per cent against Japan’s yen.
Analysts at Bank of America said the dollar’s surge was not sustainable “in the long run” as Trump’s planned blitz of tax cuts would loosen fiscal policy, widen the deficit and make the country’s debt increasingly unsustainable.
Investors have pared back their expectations for monetary loosening from the US Federal Reserve and are betting on only two interest rate cuts next year.
“Given a pro-growth narrative, coupled with some upside risks to inflation from fiscal, trade and immigration policies under Trump, these [dollar] moves appear logical in our opinion,” Mark Dowding, chief investment officer at RCB BlueBay, an asset manager, said.
• How the UK could respond to Donald Trump’s threat of tariffs
Next week traders will be watching the UK’s latest inflation figures, which are expected to show a year-on-year jump in consumer prices to 2.2 per cent in October, according to the Bank’s forecasts. Higher sustained inflation could lead to fewer interest rate cuts, helping support the value of the pound against rival currencies.
UK government bond yields, which are also sensitive to interest rate changes, were stable on Friday, falling by 1 basis point on two-year gilts and unchanged on 10-year bonds at 4.495 per cent, after a sustained climb on the back of the government’s tax-raising budget.
Analysts at ING, a Dutch bank, said gilt yields should settle at 4 per cent next year, below the 5 per cent on equivalent US Treasury bonds, due to Trump’s planned fiscal expansion.