By Amanda Cooper
LONDON (Reuters) – The pound headed for its biggest weekly loss since January on Friday, pressured by weak British economic data and a rising dollar boosted by investors’ belief that Donald Trump’s policies will slow U.S. growth and inflation push up.
Britain’s economy shrank unexpectedly in September and growth slowed to a crawl in the third quarter, data showed on Friday.
Sterling was unchanged on the day at $1.26795, around its lowest level since May, and expected to fall 2% this week, the biggest weekly loss since January.
President-elect Trump has promised to impose hefty tariffs on imports from some of the United States’ biggest trading partners, while cutting taxes at home and relaxing a slew of regulations on everything from energy to cryptocurrencies.
The likely impact is a rise in US inflation and a possible boost to domestic growth, pushing the dollar to its highest level in about a year and eroding the pound’s previous strength against the US currency.
The pound sterling turned negative against the dollar for the first time since July, down 0.4%. It was the best-performing major currency for most of 2024, as UK interest rates will take longer to fall meaningfully than US rates.
With the Federal Reserve looking increasingly likely to cut rates only gradually given the outlook for a macroeconomic backdrop of high inflation and strong growth, the dollar could be more attractive to rates than the pound.
Money markets show that traders believe the Bank of England will cut UK interest rates to around 2% in December next year, compared with an expected 3.84% from the Fed.
“We believe that if UK economic data continues to disappoint, the BoE will increase its focus on reviving growth,” said BBVA (BME:) strategist Roberto Cobo.
