LONDON (Reuters) – The British pound hit a one-month low against the dollar on Monday, as a global sell-off sparked by Evergrande’s woes in China hit risky currencies as uncertainties over the The Bank of England’s monetary policy and soaring gas prices also weighed on.
At 0827 GMT, the pound [GBP=D3] was about 0.5% lower against the dollar at $ 1.3662, its lowest level since August 23. Against the euro [GBPEUR=], the pound fell 0.32% to 0.8561 pence, a low since September 9.
A massive sell-off in Asia, where the world’s most indebted real estate developer, China’s Evergrande, plunged to its lowest level in 11 years, spilled over to Europe, with the pan-European STOXX 600 falling 1.90% and the London FTSE 100 of 1.55%.
Investors turned to the safe haven of the greenback which strengthened to a four-week high, with the dollar index hitting 93.4.
“What we are seeing are all of the risky currencies taking a general impact,” said Jeremy Stretch, head of G10 Forex Strategy at CIBC Capital Markets.
He added that domestic factors were at play for the British currency as well, with soaring gas prices causing additional headwinds.
Britain plans to offer state-guaranteed loans to energy companies after soaring wholesale gas prices, prompting major suppliers to seek government support to cover the cost of taking over customers of companies that have gone bankrupt.
Another headache for traders is the uncertainties surrounding what might emerge on the future of monetary policy at the Bank of England meeting on Thursday.
âThe market was expecting a relatively hawkish tone,â from the BoE, Stretch said, adding that risks to the economic recovery have increased recently and investors may reconsider their long bets on a stronger currency.
BoE rate-setters who may be tempted to vote next week for an early end to their COVID-19 stimulus plans should wait for now, with a slowing economy but rising inflation creating a delicate backdrop.
Last month, Michael Saunders was the only member of the Monetary Policy Committee to vote for an early end to government bond purchases by the British central bank, on the grounds that further purchases risked a more aggressive tightening of the market. monetary policy in the future.
Since then, BoE Governor Andrew Bailey has revealed that four of the eight MPC members who voted last month – himself included – believed some initial conditions were met to start exploring the possibility of increasing the numbers. interest rate.
Report by Julien Ponthus; Editing by Emelia Sithole-Matarise