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Pound Plumbs January Lows vs. Dollar after Tuesday Swoon

LONDON, Sept 29 (Reuters) - Sterling fell to its lowest levels since January against the dollar on Wednesday, sustaining much of its losses the previous day after a selloff in equity markets hit risk sentiment and pushed the currency over 1% lower.

The pound generally trades in line with global risk sentiment, and as such, is sensitive to the performance of global equity markets. Tuesday’s global equity selloff came as investors braced for future rate hikes from global central banks, most notably the U.S. Federal Reserve.

On Wednesday, sterling extended its Tuesday losses and fell 0.2% more to its lowest since Jan. 11 against the dollar at $1.35045.

It traded flat against the euro near a two-month low of 86.40 pence per euro.

“GBP sensitivity to global risk sentiment has continued to rise, and yesterday’s sell-off in equities saw the pound underperforming the G10 commodity FX segment,” ING strategists Francesco Pesole and Chris Turner said in a note to clients.

“Such downside pressure on GBP, however, does not appear to be also linked to any re-pricing in the BoE rate expectations, which have remained broadly unchanged after the BoE meeting last week.”

Bank of England governor Andrew Bailey is scheduled to speak at a forum in Sintra, Portugal later on Wednesday.

“Gilts underperformed U.S. Treasuries and Bunds this month. It’s a warning sign that markets are getting more concerned about the growth and inflation outlook for the UK,” said Kenneth Broux, strategist at Societe Generale.

“We had Bailey twice in the past 4 days warning the BoE could raise rates before the end of QE which puts markets on notice they are looking at it seriously. We will see more nasty inflation numbers and it will make for interesting discussions at MPC (Monetary Policy Committee) meetings in November and December.

British 10-year gilt yields also rose to the highest since the pandemic started above 1%, on Tuesday. Concerns have also grown about how high natural gas prices and difficulties with petrol deliveries could impact the British economy.

Drivers have been panic-buying fuel for almost a week, leaving pumps dry across major cities, after oil companies warned they did not have enough truck drivers to move petrol and diesel from refineries to filling stations.

Reporting by Ritvik Carvalho; editing by Philippa Fletcher

Source: Reuters

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