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The pound fell to its lowest level in eight months on Tuesday as investors feared the fuel crisis sweeping the UK could lead to a sharp slowdown in growth along with a surge in inflation.
The pound fell 1.2 percent to $ 1.353, its biggest one-day drop against the dollar this year and the lowest level since January. Analysts have said the panic buying of gasoline in recent days was a symptom of broader supply chain problems that threaten to undermine the economic recovery after the Covid pandemic.
The fuel shortages “have at least increased the tail risk of a short-term shutdown of the country,” said Shreyas Gopal, currency strategist at Deutsche Bank. âAnd even if panic fuel buying ends by the end of the week, as government and industry expect, the UK’s more structural supply problems will persist. Fuel scarcity is to some extent simply the vehicle through which the broader labor shortages are felt most at the moment. “
The decline in the value of the pound, which also lost 1.2% against the euro, came despite rising UK government bond yields as investors anticipated rising interest rates from here February of next year, following a hawkish Bank of England policy announcement. Last week. Investors have not reacted to the prospect of a rate hike by buying sterling – as is more common – because they fear the BoE’s plans stem from concerns about high inflation rather than an acceleration of growth.
âMarkets are starting to worry that the BoE will be forced to tighten policy in a fairly weak environment,â said Derek Halpenny, research manager for global markets at MUFG. “Looking at the pound today, it’s kind of a stagflation story.”
Gas prices surged across Europe, but Halpenny said the pound was hit the hardest by inflation fears, in part because Brexit-induced labor shortages were exacerbating problems in the Kingdom -United. âThere is a reason the forex markets are turning to the UK. You don’t see the same kind of severe shortages on the continent.
Tuesday’s declines mean the pound has now completely reversed its strong start until 2021, when the rapid rollout of Covid vaccines prompted investors to bet that the UK’s recovery could get ahead of other countries. The British pound has now lost almost 5% against the dollar since peaking at just over $ 1.42 in late May.