# Sterling slides as bets for aggressive U.S. tightening boost dollar
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-10-10
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Sterling slides after strong U.S. labour data
Meta Description: Stay updated on Sterling's movements amidst U.S. data and UK fiscal plans. Learn more about the impact on the currency market.
URL: https://financedigest.com/sterling-slides-as-bets-for-aggressive-u-s-tightening-boost-dollarhtml

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By Alun John

LONDON (Reuters) -Sterling slid versus the dollar on Monday after Friday’s strong U.S. labour market [data supported bets the Federal Reserve will keep raising rates](https://www.financedigest.com/dollar-advances-as-strong-u-s-data-backs-higher-rates-backdrop.html "Dollar advances as strong U.S. data backs higher rates backdrop") aggressively.

The pound dropped to a 10-day low of $1.1027 in early London trade, but recovered some ground after the Treasury said Britain will [publish its medium-term fiscal plan and independent budget forecasts](https://www.financedigest.com/publisher-bloomsbury-casts-upbeat-forecast-says-books-affordable-pastime.html "Publisher Bloomsbury casts upbeat forecast, says books ‘affordable pastime’") on Oct. 31.

The [government had been due](https://www.financedigest.com/uniper-ceo-to-resign-due-to-government-takeover.html "Uniper CEO to resign due to government takeover") to set out the plan, which builds on a mini-budget in September, on Nov. 23, but [markets reacted](https://www.financedigest.com/market-stress-indicators-react-sharply-after-u-s-bank-failures.html "Market stress indicators react sharply after U.S. bank failures") badly to the September announcement and the lack of accompanying independent forecasts, leading to pressure to bring these forward.

[Sterling was last down 0.41% versus the dollar](https://www.financedigest.com/dollar-outshines-euro-sterling-amid-european-bank-jitters.html "Dollar outshines euro, sterling amid European bank jitters") at $1.1046, while the euro, which was also at a 10-day low on the dollar, lost 0.2% against the pound to 87.68 pence.

The British currency has had a volatile few weeks, [falling to a record low](https://www.financedigest.com/dollar-falls-to-nine-month-low-as-powell-notes-progress-in-disinflation.html "Dollar falls to nine-month low as Powell notes progress in disinflation") of $1.0327 in late September, after markets were roiled by a series of unfunded tax cuts announced by the British government, before recovering as high as $1.1028 last week.

The [pound could weaken further against the dollar](https://www.financedigest.com/pound-hits-10-month-peak-euro-up-as-dollar-under-pressure.html "Pound hits 10-month peak, euro up as dollar under pressure") this week for two reasons said Carol Kong, currency strategist at Commonwealth bank of Australia.

First, we expect the USD to lift because US [inflation can reinforce that the FOMC will not pivot on rate rises](https://www.financedigest.com/oil-rises-about-2-with-u-s-and-china-inflation-in-focus.html "Oil rises about 2% with U.S. and China inflation in focus") soon,” she said. Second, domestic [data will reinforce that the UK economy](https://www.financedigest.com/stocks-yields-fall-data-suggests-u-s-economy-cooling.html "Stocks, yields fall; data suggests U.S. economy cooling") is slowing.

She also noted there was little technical [support for the pound](https://www.financedigest.com/uk-launches-270-million-pound-fund-to-support-green-heating-technology.html "UK launches 270 million pound fund to support green heating technology") until $1.0702.

U.S. [inflation data is due on Thursday and a high level combined with last week’s](https://www.financedigest.com/dollar-dips-ahead-of-inflation-data-later-this-week.html "Dollar dips ahead of inflation data later this week") strong U.S [jobs data](https://www.financedigest.com/stocks-mixed-dollar-gains-after-robust-inflation-jobs-data.html "Stocks mixed, dollar gains after robust inflation, jobs data") would mean the U.S. Federal Reserve will continue to [raise rates](https://www.financedigest.com/bank-of-england-raises-rates-to-3-5-says-inflation-has-peaked.html "Bank of England raises rates to 3.5%, says inflation has peaked") aggressively, something that has boosted the greenback.

Meanwhile, in [Britain jobs data](https://www.financedigest.com/britain-plans-new-data-rules-to-ease-compliance-burden.html "Britain plans new data rules to ease compliance burden") is due on Tuesday and GDP figures on Wednesday.

The volatility appears to be starting to affect market players’ willingness to trade the British currency, and the latest weekly [data from the CFTC showed traders had cut](https://www.financedigest.com/dollar-skids-after-soft-u-s-economic-data-impact-of-opec-cuts-fades.html "Dollar skids after soft U.S. economic data; impact of OPEC+ cuts fades") both their bullish and bearish bets on the pound.

We can presume that traders wanted to de-risk from the [pound given its volatility of late and loss of confidence in the British](https://www.financedigest.com/shell-to-evaluate-25-billion-pound-british-investments-after-windfall-tax.html "Shell to ‘evaluate’ 25 billion pound British investments after windfall tax") government,” said Matt Simpson, a market analyst at CityIndex in a note.

The [Bank of England was also in focus](https://www.financedigest.com/dollar-skulks-at-eight-month-low-central-bank-meetings-in-focus.html "Dollar skulks at eight-month low, central bank meetings in focus") as, at the end of this week, it is due to end its emergency buying programme launched last month to ease turmoil in the government bond market, which also followed September’s mini-budget.

The central bank on Monday moved to ease concerns by announcing a doubling of the maximum size of its planned Monday debt [buyback and launching](https://www.financedigest.com/abb-to-launch-1-billion-share-buyback-on-april-3.html "ABB to launch billion share buyback on April 3") a temporary expanded collateral repo facility, which would help banks ease liquidity pressures facing client funds caught up in turmoil that threatened pension funds.

(The latter) is one to note as it should backstop liquidity conditions [beyond the next](https://www.financedigest.com/the-next-generation-sequencing-market-to-virtually-grow-beyond-geographies.html "The Next Generation Sequencing Market to virtually grow beyond geographies") meeting. We think this could be seen as the [Bank setting out the foundations for a big interest rate](https://www.financedigest.com/bank-of-englands-mann-doubles-down-on-backing-for-rate-hikes.html "Bank of England’s Mann doubles down on backing for rate hikes") announcement in November, one that could cause some market dysfunction in the absence of such measures,” said Simon Harvey, head of FX analysis at Monex Europe.

(Reporting by Alun John, editing by Ed Osmond and Susan Fenton)


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