The pound fell more than a cent against the dollar to trade below $ 1.20 in foreign exchange markets for the first time since March 2020, as the city’s traders reacted to mixed labor market data and the prospect of a new one. referendum on Scottish independence. The currency also lost ground as the dollar strengthened to a new two-decade high in anticipation of interest rates from the US Federal Reserve on Wednesday to tackle soaring inflation, possibly up to 0.75 percentage points. The Fed last raised interest rates by that amount in 1994. Against the euro, the pound fell more than 1% to around 86.81 am, its lowest level since May last year. Analysts said the pound was under pressure from the stronger dollar, as unexpectedly high US inflation data fueled expectations for more aggressive interest rate hikes by the US Federal Reserve. With the UK forecast to fall near the bottom of the global growth charts next year, the Bank of England could be forced to take a more cautious approach when setting interest rates on Thursday, despite inflation soaring to higher level than in the early 1980s. Threadneedle Street is expected to raise interest rates by 0.25 percentage points on Thursday, raising its key interest rate to 1.25%. Subscribe to the daily Business Today email or follow the Guardian Business on Twitter at @BusinessDesk The latest fall in the currency comes after the UK’s unemployment rate rose sharply to 3.8% in the three months to April, from 3.7% in March. The city’s economists had forecast a drop to 3.6%. Against a backdrop of negative developments for the strength of the pound, analysts said Nicola Sturgeon’s announcement on Tuesday that she was preparing for a new Scottish independence referendum also weighs heavily on the currency. Scotland’s first minister said on Tuesday she would brief Holyrood on her plans “very soon indeed”. Simon Harvey of Monex Europe, a financial trading company, told Reuters: “If I is isolating the motion lower in an event, I would probably say that the risk of Scottish independence was the straw that broke the camel’s back.”
