Adding to the pound’s plight was the news that Irish nationalist Sinn Fin had won the largest number of seats for the first time in last Thursday’s election in Northern Ireland’s Assembly.
The pound fell 0.4% to $ 1.2284, its lowest level in nearly two years since falling to $ 1.2262.
It hit a new low for three consecutive sessions, losing 2.3% against the dollar this month. At the same time, the greenback hit a two-decade high as investors seized the safe currency amid heightened uncertainty about global growth prospects.
Kit Jacks, head of currency strategy at Socit Generale, said the key to Sterling’s outlook on the dollar was what would happen to the euro above $ 1.05.
“The euro / dollar is right at 1.05 and if it goes, the cable (sterling / dollar) will fall against the euro,” he said.
Against the euro, the pound fell one-fifth to 85.60 pence, the lowest level in five months on Friday.
Analysts say developments in Northern Ireland have contributed to Sterling’s weakness, yet the biggest driver weakens growth potential in the UK.
On Thursday, the Bank of England raised its benchmark interest rate to 1.0%, saying the economy was likely to be flooded in 2023 and 2024 due to a surge in inflation.
The symbolic significance of Sinn Fin’s victory in ending the dominance of pro – British parties in the Northern Ireland Assembly last week is equally important.
The DUP, a leading supporter of Britain’s exit from the European Union, has seen its support dwindle in part due to its role in the post – Brexit talks between London and Brussels.
ING analysts say a bad local election result could make Britain more militant in trade.
“The UK’s current trade deal is no better than a deal – yet threats by the UK government to break protocol with Northern Ireland are likely to hurt a weaker pound,” she said in a statement. “Cable seems to be moving towards 1.20 and Euro / Sterling 0.86.”
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