Pound hits 22-month low against the dollar
The pound slid to a 22-month low against the dollar and was on track for its steepest monthly drop in over 11 years on Thursday as negative sentiment mounted on the economy, raising expectations for a rate cut.
Dollar hovers near record lowThe Bank of England's quarterly inflation report on Wednesday gave a gloomy prognosis for the economy, and said inflation would fall below the central bank's 2 percent target in two years if interest rates were held at 5 percent.
Inflation at more than double the Bank's target had kept expectations of rate cuts on the back-burner despite data showing the economy in poor shape and heading towards a possible recession.
But the central bank's suggestion that inflation is set to slide ramped up expectations for a rate cut by the end of the year, denting the currency's yield advantage.
"We saw a switch in focus from the Bank of England which is now seeing through short term inflation problems, This is what sent sterling spinning," said Nicola Chadwick, international economist at Commonwealth Bank of Australia.
At 8:24 a.m., the pound was flat at $1.8684, having earlier fallen as low as $1.8620, its lowest since October 2006. The euro was steady at 79.80 pence.
On a trade-weighted basis, the pound edged off an 11-1/2 year low set the previous session to trade at 90.9.
A Reuters poll of economists forecast a 40 percent median probability of an interest rate cut by year-end, with rates falling to 4.25 percent by the third quarter of next year.
"A rate cut before year-end is not guaranteed," said ING in a note to clients. "Nonetheless, aggressive rate cuts are likely through 2009 as recession risks mount."
(Reporting by Simon Falush, editing by Mike Peacock)
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