Sterling faced another tough day on Monday as a sell-off sparked by fears around the UK’s fiscal woes continued to hit.
Against the dollar, the pound fell by 0.58% to US$1.2138 on Monday to hit its lowest level since early November 2023.
Demand for options-trades that would pay out if the pound fell as low as US$1.12 had also topped that seen during the mini-Budget turmoil of 2022, according to Bloomberg.
Last week saw the pound sink 1.8% as borrowing costs surged, with 30-year gilt yields hitting their highest level since 1998.
Fears had built that chancellor Rachel Reeves would be forced to scale back on spending pledges with cuts or tax raises as a result.
Expectations for Bank of England rate cuts have also dropped recently over concerns around stubborn inflation, with markets pricing in 44 basis points of reductions for 2025 on Monday, against 50 basis points last Friday.
Candriam fund manager Jamie Niven noted “the path of least resistance” was for the pound to fall further.
“On one side, you have very limited pricing in of Bank of England cuts, while the fiscal concerns are also sterling negative,” he said.
“This is a sign that bond market weakness is seeping into the FX market, which is another red flag for traders,” XTB analyst Kathleen Brooks added.
“The pound is not alone, the dollar is the top performer in the G10 foreign exchange space, and it is expected to stay there while this period of risk aversion grips financial markets.”