The pound has jumped by around 0.25% against the dollar on Wednesday morning, passing back above the psychologically significant $1.30 mark.
Sterling crashed below $1.30 for the first time since early July on Tuesday, as investors continued to react to the Bank of England’s first interest rate cut in seven years.
The BoE cut interest rates to a historic low of just 0.25% on Thursday, and launched a £70 billion programme of quantitative easing, including an unprecedented £10 billion dedicated to buying investment grade bonds from companies with substantial UK operations.
That news sent sterling crashing against the dollar, dropping as much as 1.5% in the immediate aftermath of the decision, and continued to fall, passing $1.30 on Tuesday morning.
On Wednesday, however, sterling investors have pulled the currency higher, and just after 8:35 a.m. BST (3:35 a.m. ET) sterling is trading at $1.3034, a gain of 0.25%. Here is how that looks:
On Monday, HSBC analyst David Bloom and his team said in a note circulated to clients that it believes sterling will fall much further in the coming months. Bloom argues that the Bank of England will cut interest rates down to 0.10% in November, pushing the pound to 1:1 parity with the euro. The pound will fall to just $1.10 with the US dollar by the end of 2017, Bloom believes.
The pound has not been that weak against the dollar since 1985, when chancellor of the exchequer Geoffrey Howe let the pound float and the US Fed pushed up the dollar by raising US interest rates above 10% in a drive to stamp out inflation.
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