Sterling slumps to 2-m low against USD

The pound sterling approached its lowest level in nearly two months against a strong US dollar on Tuesday, driven by a rise in US Treasury yields. The dollar’s strength saw sterling drop by 0.25 per cent to $1.2618, close to last week’s low of $1.2616, its weakest since May 15.

The pound remained steady against the euro at 84.935 pence but hovered near its lowest level since early June.

Investors are weighing the implications of a potential second term for Donald Trump following President Joe Biden’s recent debate performance and a Supreme Court ruling granting Trump broad immunity from prosecution over efforts to overturn the 2020 election, according to Chris Weston, head of research at Pepperstone.

The euro continued its modest rally from the previous week, buoyed by comments from European Central Bank President Christine Lagarde, who indicated no immediate plans to cut interest rates.

Despite this, the pound’s value against the euro has fallen, contributing to the pound index reaching its lowest in five weeks, as noted by Caxton strategist David Stritch.

In France, the first round of elections saw the far-right National Rally (RN) secure the largest vote share, albeit less than anticipated, supporting the euro. Markets are factoring in at least one more European Central Bank rate cut this year, though the likelihood of a second cut has diminished slightly.

As Britain heads to the polls on Thursday, the Labour Party is expected to end the Conservative Party’s 14-year tenure. However, the UK’s tight fiscal situation may limit significant spending increases, potentially stabilising sterling and containing volatility.