© Reuters. FILE PHOTO: Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company’s headquarters in Vienna, Austria, November 16, 2017. REUTERS/Leonhard Foeger
LONDON (Reuters) – The British pound weakened to a three-week low versus a robust U.S. dollar on Wednesday, as latest comments by U.S. Federal Reserve’s officials highlighted a divergence between the U.S. and UK central banks on how to tackle inflationary pressures.
At 0811 GMT, the pound was flat against the dollar to $1.3073, after earlier touching its lowest level since March 16 at $1.3046.
Against the euro, sterling was up 0.1% at 83.30 pence.
Fed policymaker Lael Brainard, typically one of the more dovish Fed board members, said on Tuesday that balance sheet reduction could begin “at a rapid pace” as soon as the central bank’s meeting next month.
A hawkish stance from the Fed bolstered the dollar and contrasts with the Bank of England. BoE deputy governor Jon Cunliffe said earlier this week he did not believe expectations of persistently high inflation were becoming embedded in companies’ and consumers’ thinking.
Cunliffe was the lone voice who voted against the BoE’s decision to raise its interest rate for the third consecutive meeting in March.
Money markets are currently pricing in a further 140 basis points (bps) of interest rate hikes from the BoE this year, taking the key rate above 2.0%.
“BoE pricing is very much at odds with our house view that the BoE tightening cycle pauses at 1.00/1.25% this summer,” said ING analyst Chris Turner.
“If that is the case, GBP could have a rocky 2H22 as the cost-of-living crisis bites and the chancellor saves fiscal support for a 23/24 election.”
Sterling slips to three-week low vs dollar on hawkish Fed comments