LONDON — The pound failed to hold onto small gains from morning trading on Thursday as hawkish remarks from Federal Reserve Chair Jerome Powell outweighed British policies aimed at reducing surging energy costs, and left sterling near its 37-year low hit a day earlier.
Sterling was last at $1.1486, 0.42% lower, having reached as high as $1.1562 as new Prime Minister Liz Truss announced a cap on soaring consumer energy bills for two years on Thursday.
This was still not far above the $1.1407 it hit on Wednesday, however, its lowest since 1985. The British currency has fallen 15% on the dollar this year, weighed down by a combination of slowing economic growth and surging inflation.
The very strong dollar has also been a factor in this move, and the greenback climbed further on Thursday after Fed Chair Powell reiterated that the central bank would continue to raise interest rates in order to tame surging inflation and warned against prematurely loosening monetary policy.
The dollar index, which tracks the greenback against six majors, was last up 0.36%.
Truss’s package was aimed at limiting the economic shock of the war in Ukraine that could cost the country about 150 billion pounds ($172 billion), and briefly boosted the pound.
“The highlight of the Truss announcement is the energy intervention, expected to curb peak inflation by up to 5 percentage points,” said Kenneth Broux, currency strategist at Societe Generale.
“For the market, this is the big takeaway. The reason cable (sterling/dollar) has come down so much is not just a strong dollar but also the surge in inflation expectations.”
Broux added that the UK inflation curve was reacting positively to the headlines and if inflation expectations come down “that saves the pound from new lows,” though he said it was too early to recommend buying sterling on the dips.
The pound hit a fresh two-and-a-half month low of 86.95 pence per euro early in the session before recovering to 86.65 pence.
The European Central Bank’s decision to raise rates by an unprecedented 75 basis points did little to support the common currency, which lost 0.55% on the dollar.
(Reporting by Alun John; Additional reporting by the London markets team; Editing by Bradley Perrett, Hugh Lawson and Andrea Ricci)