Sterling's Surprising Skid: Monetary Policies in Focus

Sterling tumbled against major currencies as monetary policies diverged. The Bank of Japan anticipates rate hikes, contrasting with the Bank of England's potential easing. UK government fiscal challenges have impacted bond markets, with signs of recovery stabilizing sterling slightly. Analysts remain cautious about sterling's future performance.

Sterling experienced a sharp decline against the yen, dollar, and euro on Thursday due to diverging monetary policies, following last week's significant sell-off in UK gilts and the pound.

The Bank of Japan's anticipated 50 basis points rate hikes in 2025 contrasts sharply with the Bank of England's potential policy easing. This led to sterling dropping 0.77% against the yen, marking a new low. Concerns about UK fiscal challenges and a heavy government bond supply pushed borrowing costs to their highest since 2008, yet some bond market recovery provided a stabilizing effect for sterling.

Britain's economic growth remained modest, fueling expectations of future Bank of England rate cuts. Analysts argue it's too soon to expect a rebound for sterling, with fiscal dynamics continuing to play a crucial role in its ongoing struggle against the dollar.

(With inputs from agencies.)