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Pound sterling suffers fresh 14-month low as traders pare bets on Fed rate cuts

2025-09-24 22:20:16 By

Sterling experienced another setback on Monday, dropping to its lowest level in 14 months against the US dollar due to a worldwide sell-off caused by worries that the US Federal Reserve might limit interest rate cuts to just one this year.

The pound weakened by as much as 0.7% against the dollar, hitting $1.211, which marked it as the G-10's poorest performer in comparison to the dollar, as reported by City AM.

"Sterling continues to trade on a soft footing and its losses could extend this week," commented Chris Turner, an FX analyst at ING, who also indicated that the pound might plummet to $1.20.

The downturn arises following a difficult week for UK financial assets, with sterling tumbling over three per cent and government bond yields soaring to multi-decade highs. Market participants have positioned their bets against the UK due to anxiety that the government’s Budget could exacerbate inflation, decelerate growth, and result in the Bank of England easing off on interest rate reductions sooner than anticipated.

Moreover, government bond yields accelerated on Monday as well, with the 10-year gilt's yield climbing by four basis points to 4.87 per cent, and the 30-year gilt's yield increasing by 12 basis points to 5.53 per cent.

This UK-specific distress occurs amid broader market trepidations, as investors reconsider expectations about how aggressively the Fed can cut interest rates in 2025. A robust employment report last week signalled that the world's largest economy remains in a robust expansion mode while the looming spectre of Donald Trump’s tariffs has stoked concerns over potential inflationary impacts

"The US labour market is too hot to allow for any Fed easing soon," Barclays analysts have noted. Just one rate cut from the Federal Reserve is what markets are currently anticipating this year.

The stronger dollar results from higher rates in the US, which attract investors seeking a higher return on US assets compared to those in other regions. This Monday saw the dollar index, which measures the greenback against major currencies, hit its highest mark since November 2022.

With expectations of higher interest rates in the US, bond yields around the world are also pushed up, as the US federal funds rate serves as a lending benchmark in the global economy. In recent weeks, government bond yields in all advanced economies have seen increases, although UK gilts have underperformed slightly in comparison to their peers.

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City analysts downgrade luxury stocks as impact of Trump tariffs filter through

Deutsche Bank, the city broker, has lowered the target share price for a range of luxury firms as Trump's tariffs begin to influence analyst predictions. The broker assigned a 'Hold' rating to Richemont, LVMH, Moncler and Kering, reducing the share price for each company, as reported by City AM. "The direct impact of the tariffs is not a huge headwind in our view... However, weaker global stock markets and the broader economic uncertainty will weigh on confidence and we see this further postponing a recovery in luxury demand," analysts commented. Hermes was the sole firm to receive an upgrade, with Deutsche Bank shifting its recommendation from a 'Hold' to a 'Buy' and raising the target share price from €2,220 to €2,550 (£1,911 to £2,195). Mamta Valechha, Consumer discretionary analyst at Quilter Cheviot, stated that Hermes would benefit from its "strong pricing power and higher-end positioning" despite the inevitable single-digit price increases. "However, how the US (and global) luxury consumer responds to potentially reduced global economic growth remains unknown," Valechha added. There was a significant sell-off in luxury markets after Trump announced tariffs on April 2. Burberry, Kering, and LVMH have dropped 16.6 per cent, 16.2 per cent 12.5 per cent, respectively, since April 2. Traditionally safe bets Hermes and Ferrari have dropped 8.5 per cent and nine per cent, respectively. Analysts were initially banking on a resurgence in the luxury sector following a dip caused by the cost-of-living crisis in Europe and economic downturn in China during 2023. "It is no longer clear that the third quarter of 2024 was the nadir for luxury demand," stated analysts from Deutsche Bank. "The luxury recovery in the fourth quarter now looks likely to be the anomaly and not the trend."

Bank of England's Carolyn Wilkins highlights market discipline amid UK bond turmoil

The recent upheaval in the UK's bond market is a clear indication that the "dragons of market discipline are alive and well," according to a statement made today by Carolyn Wilkins, an external member of the Bank of England's financial policy committee (FPC). Speaking at Fitch Ratings, she acknowledged the recent instability in the gilt market, as reported by City AM. "Recently we’ve seen orderly movements in global yields as one would expect given news that markets consider relevant to the global outlook." She further noted, "There have been spikes in yields in a number of individual countries in recent years, including the UK, that indicate the dragons of market discipline are alive and well," The UK government bonds experienced a significant sell-off, largely driven by the anticipation that US interest rates would remain high for a longer period due to persistent inflation. The yield on the 10-year gilt reached 4.93 per cent, its highest level since the financial crisis. Gilt yields are closely linked to movements in the US Treasury market. Although yields have almost entirely recovered following soft economic data, the FPC remains concerned about the high levels of public debt, both in the UK and globally. "The FPC that I sit on is of the view that global sovereign debt risks are material," Wilkins stated, adding that global public debt is likely to approach 100 per cent of GDP by the end of the decade. Concerns are intensifying among market participants about the sustainability of public debt externally, which could affect the internal cost of debt servicing for the UK government, as well as for households and businesses, an expert emphasized. In recent times, a slew of commentators have sounded the alarm on the rising debt in advanced economies. Significantly, the Congressional Budget Office in the United States highlighted an alarming trend on Friday, stating that US government debt is likely to exceed its post-World War II record, a projection that's yet to account for the impact of the tax cuts introduced by Donald Trump. "The fiscal situation is daunting, the debt trajectory is unsustainable," remarked Phillip Swagel, director of the CBO, after the office published its report.

Gambit Corporate Finance toast best ever year with deals worth £500m in 2024

Gambit Corporate Finance orchestrated transactions with a value of more than £500m in 2024 in what was its best ever year. The mid-market corporate finance advisory firm, established in 1992, said that while the UK mergers and acquisitions (M&A) market experienced some turbulence last year, due to continued macroeconomic headwinds and concerns over the likelihood of significant changes to the UK tax system, its impressive growth has continued. It acted on 16 deals last year. Notable transactions included acting as lead advisor for Bridgend-based Nodor International in it becoming majority-owned by Inflexion Private Equity. Nodor is the world’s leading darts brands, with its products including Winmau dartboards and Red Dragon darts. The deal, which will accelerate the company’s global growth plans, was one of the biggest ever private equity transactions in Wales. While the value of the deal was not disclosed, it is understood to have been well north of £100m. It also advised a shareholder of Cross Hands-based leading food and beverage business Castell Howell on the disposal of a material stake in the business Clinica Baviera SA, the Spanish-quoted business and one fo the largest ophthalmology chains in Europe, also turned to Gambit on its entry into the UK market with the acquisition of Optimax. Optimax operates 19 clinics across UK major cities and specialises in eye surgery and ophthalmic services. Gambit also acted for Newport headquartered timber group Premier Forest on four acquisitions, while also advising Carmathenshire-based Shufflebottom on its acquisition by Embrace Steel Group, whic is one of the UK’s largest independent providers of steel-framed buildings for industrial and commercial sectors. Gambit said average enterprise value/Ebitda multiples were strong with solid fundamentals, with it ensuring premium valuations. It said this trend is expected to continue through 2025. Whilst there was a decline in international buyers in the UK M&A mid-market early last year, Gambit said it is experiencing increased international interest, particularly Northern European and US buyers. Gambit is the exclusive UK shareholder in Corporate Finance International (CFI), a group of global corporate finance advisory firms with 28 offices in 18 countries and some 300 fee earners. CFI enables Gambit and its clients to identify and directly access buyers, sellers and investors on a global basis. In 2024, CFI completed in excess of 100 transactions and more than 30% of these were cross border. CFI was ranked by Thomson Reuters as number 18 in Europe and in the top 30 globally for transactions up to €200 million in value. Frank Holmes, Gambit partner, said “We are very proud that Gambit achieved its best ever year in its 32 -year history, despite some turbulence in UK M&A markets. We have invested heavily in the growth of the firm and we have a team of unprecedented quality and size. This, coupled with our unmatched global reach via Corporate Finance International means that we are expecting the momentum generated in 2024 to continue." Jason Evans, partner and head of debt advisory at Gambit, said: “The abundance of capital held by private equity funds, venture capital investors, debt funds and acquisitive companies, coupled with a lowering cost of capital and more stable macroeconomic landscape is fuelling a recovery in M&A volumes and debt capital markets.

Natwest share price rockets to 10-year high as investors eye bumper 2025 growth

The share price of Natwest has soared to its highest point since February 2015 in early trading today, as investors show confidence in the bank's growth prospects for 2025. The UK lender's stock has surged by 95 per cent over the past year, marking it as one of the FTSE 100's top performers, with no signs of momentum waning, as reported by City AM. Last month, RBC analyst Benjamin Toms noted the bank's "attractive net interest income (NII) momentum" heading into 2025. NII is the differential between the interest banks earn on loans and other assets and what they pay out on deposits, with higher rates typically bolstering this income by allowing banks to charge more for lending. "The domestic banks have large structural hedges, and based on current rate expectations, we think the hedge roll benefit will more than offset the impact of rate cuts," Bank of America analysts stated. They also suggested that "Additional upside may come from higher loan growth, particularly in commercial, given the government’s growth agenda." "Natwest should be best-placed to take advantage of any UK growth" among UK banks, they continued, forecasting an annual four per cent increase in the bank's loan book. The analysts underscored Natwest's leverage to UK economic expansion, especially in the corporate and commercial sectors, due to its status as Britain's largest commercial bank. Furthermore, last summer saw Natwest expand its market presence by acquiring Sainsbury’s Bank and the residential mortgage portfolio from Metro Bank.

Bank of England to cut rates five times in 2025, says Morgan Stanley

Morgan Stanley has forecast that the Bank of England will implement five interest rate cuts in 2025 to bolster a faltering economy. On Monday, the US investment bank revised its growth forecasts downward, attributing this to the prolonged effects of the Bank's monetary tightening and repercussions from the Budget, as reported by City AM. It now anticipates the UK economy to expand by just 0.9 per cent in 2025, a decrease from the previous projection of 1.3 per cent and significantly below the consensus among City economists. "While the peak impact of the Bank of England’s policy tightening is likely behind us, its drag on the economy still persists," Morgan Stanley analysts wrote. They also observed that the measures announced in the Budget have negatively affected business sentiment. The analysts highlighted a "limited hiring appetite" even before the increase in employment costs, with demand becoming "lacklustre to non-existent" post-Budget. Recent purchasing managers’ index (PMI) data indicates that companies have been shedding jobs at the quickest rate since the financial crisis, barring the pandemic period. "The mood music has deteriorated meaningfully since the summer," the analysts commented, suggesting that the Bank would focus more on the weakening economic activity than on persistent inflation signs. According to Morgan Stanley's predictions, the Bank Rate would end the year at 3.50 per cent, a reduction from the current 4.75 per cent. Goldman Sachs, another Wall Street heavyweight, also expects the Bank to aggressively cut rates, forecasting six reductions by mid-2026. These forecasts are considerably more dovish than market predictions, which suggest three or four rate cuts by mid-next year. Policymakers are set to convene again on 6 February, with a third rate cut expected to be endorsed.

Investors pile into gold as Trump's tariff turmoil continues

The price of gold has soared to another record peak, fuelled by concern over President Donald Trump's tariff strategy and a weakening dollar, leading investors towards the traditional sanctuary of precious metals. Gold's value ascended 1.5% to surpass $3,200 (£2,451) per troy ounce on Friday – an unprecedented level – as Asian markets stumbled due to the ongoing repercussions of President Trump's deferred tariff measures, as reported by City AM. Despite its status as a refuge for capital during turbulent times, the precious metal had initially been swept up in a severe sell-off amid tariff-driven market chaos. Gold spot prices experienced a remarkable increase of over 30% since the beginning of 2024 but witnessed a downturn from $3,166/oz to $2,973/oz from April 2 to April 6. Market experts believe that investors were compelled to sell their gold assets to cover margin calls from creditors. Pepperstone analyst Michael Brown pointed to the removal of the "risk premium" associated with gold after its exclusion from the postponed tariffs Trump labeled ‘Liberation Day’ as the cause of the brief dip. Nevertheless, from April 6 onward, gold has bounced back robustly, registering its most significant bi-day surge since 2020 and reaching a new all-time high. Market strategists have attributed this latest rally to the faltering US dollar – which renders the metal more accessible to buyers using other currencies – and predictions that central banks might accelerate interest rate cuts more than previously presumed to prevent an economic deceleration. This week has seen the dollar descend to its lowest level against major global currencies in a decade. Dominic Schinder of UBS Global Wealth informed Bloomberg TV that further rate cuts from the Federal Reserve would provide another "leg up" for gold, as the yield on holding cash – a common refuge amid prevalent bearish sentiment – is lower. This rally boosted London-listed gold miners, leading the FTSE 100 higher on Friday morning. Fresnillo saw an increase of approximately 5.9 per cent, while Endeavour experienced a surge of over 4.5 per cent in early trades. Brokers at Peel Hunt upgraded precious-metal-miner Fresnillo from 'hold' to 'add' in a note, suggesting that sustained high gold and silver prices would generate more cash flow at the commodities giant. "[The first quarter] saw gold and silver prices well ahead of expectations on rising market uncertainty," they noted. "The extreme US tariff announcements simply added to this uncertainty.

Former Bank of England policymaker says 'hold' rates at 4.5 per cent in May

Former Bank of England rate-setter Jonathan Haskel has indicated that current high inflation levels warrant maintaining interest rates at 4.5 per cent in May. Investors and analysts, anticipating a cut in interest rates next month to address concerns over low growth, are pricing in up to three additional reductions by year's end, as reported by City AM. However, Haskel, who served on the Bank's Monetary Policy Committee (MPC) until August of the previous year, argued for a "wait and see" stance despite potential deflationary impacts from President Trump's tariffs. In conversations with City AM, Haskel remarked: "Core inflation in the UK, dominated by domestically generated service sector inflation, is above target-consistent levels," and stated, "Thus, and given the uncertainty around what the enduring tariff level will be, I would favour a 'wait and see' policy and so hold UK rates at the next meeting." February saw inflation reach 2.8 per cent, spurred by a five per cent surge in services prices, well above the Bank of England's consumer price inflation (CPI) aim of two per cent. Haskel acknowledged that the comprehensive tariffs would put a damper on economic activity and inhibit growth as global markets adjust to open trading with the US. He also agreed with current MPC members Swati Dhingra and Megan Greene that such tariffs would exert a "deflationary for the UK economy" effect on the UK economy. According to Haskel, the influx of cheap goods from countries like China, which is subject to tariffs exceeding 100%, would likely drive prices down. Nevertheless, he maintained his stance. These comments offer a glimpse into the thought process of the more hawkish MPC members, who are growing increasingly concerned about persistent inflation. Clare Lombardelli, a current MPC member, expressed uncertainty about the impact of Trump's tariffs on inflation, citing the potential for retaliatory measures from other countries. Haskel's views diverge from those of former deputy Bank governor Charlie Bean, who advocated for a rate cut of up to 50 basis points. David Blanchflower, a former rate-setter, even suggested convening an emergency meeting before May 8. Kallum Pickering of Peel Hunt, who typically takes a hawkish stance on monetary policy, argued that the Bank has an "easy" decision to cut interest rates, as high inflation is no longer a concern due to tariffs. "We can worry a lot less about inflation, and therefore we can start easing a little bit faster," he told City AM. "Growth is likely to be weaker, so rates need to come down." Pickering suggested that Andrew Bailey should advise the Prime Minister to refrain from imposing reciprocal tariffs, thereby avoiding a near-term inflation shock. He also stated that predictions of inflation potentially reaching as high as 3.75 per cent were not "irrelevant". "It's not even worth paying attention to economic data that is telling you about the economy before the US dramatically escalated tariffs. It's just, it's redundant." Pickering further suggested that the elevated gilt yields, which are increasing borrowing costs, were a consequence of fears surrounding low growth and these changes provided further justification for the Bank to reduce interest rates. "In a strange way, if the Bank of England were actually to go a little bit quicker with rate cuts and support growth expectations, it would probably have the effect of reducing bond yields in the long run because markets would worry less about recession risk." Central banks around the world are rapidly responding to the impacts of a full-blown trade war. Policymakers in India and New Zealand cut interest rates on Wednesday. Reserve Bank of India Governor Sanjay Malhotra said "concerns on trade frictions are coming true." The US Federal Reserve has come under pressure from JP Morgan executive Bob Michele – and the US president himself – to cut interest rates. Federal Reserve Bank of Minneapolis President Neel Kashkari said high inflation expectations in the US would delay interest rate cuts while some analysts believe that markets may have overestimated the number of cuts due to be made this year. "The Fed is being held back from providing additional policy rate cuts because there is limited evidence that the economy needs immediate additional support," Seema Shah, chief global strategist at Principal Asset Management, told City AM. "In order to cut rates, the Fed needs to believe that softer growth will exert downward pressure on inflation in the medium term and inflation expectations must remain anchored."

West Midlands Lloyds and Halifax branches to close

A host of Lloyds and Halifax branches across Birmingham and the West Midlands have been tabled for closure over the coming months. The group is among 136 which the banking group has confirmed will be shut down. The first to close will be Lloyds and Halifax branches in High Street, Bromsgrove, at the end of May. They will be followed by Halifax, in Erdington's High Street in September, and Lloyds in Vicar Street, Kidderminster, just a few weeks later. Lloyds branches in Foleshill Road, Coventry, and High Street, Shipston-on-Stour, will both close in the first half of November and finally Halifax in Bearwood Road, Smethwick, will cease trading in March next year. Email newsletters BusinessLive is your home for business news from across the West Midlands including Birmingham, the Black Country, Solihull, Coventry and Staffordshire. Click through here to sign up for our email newsletter and also view the broad range of other bulletins we offer including weekly sector-specific updates. We will also send out 'Breaking News' emails for any stories which must be seen right away. LinkedIn For all the latest stories, views and polls, follow our BusinessLive West Midlands LinkedIn page here. Across the wider region there are branches in Staffordshire, Shropshire and the East Midlands also earmarked for closure. In total, 61 Lloyds, 61 Halifax and 14 Bank of Scotland branches will shut their doors for good between May and March 2026. The closures come weeks after Lloyds Banking Group said it would allow customers of Lloyds, Halifax and Bank of Scotland to use stores across any of its brands for in-person banking. The group has blamed the move on customers shifting away from banking in person to using mobile services but stressed it would offer affected workers roles elsewhere in the company. A statement said: "Over 20 million customers are using our apps for on-demand access to their money and customers have more choice and flexibility than ever for their day-to-day banking. "Alongside our apps, customers can also use telephone banking, visit a community banker or use any Halifax, Lloyds or Bank of Scotland branch, giving access to many more branches. "Customers can also do their everyday banking at over 11,000 branches of the Post Office or in a banking hub." The announcement means that more than 1,700 bank branches have shut or announced their intention to close since February 2022 when a voluntary agreement saw the major banking groups commit to assessing the impact of every closure. This has included both Lloyds and Halifax branches in Birmingham city centre and elsewhere across the region. It works out at an average of around 50 closures announced per month, with around 289 branches expected to shut this year.

Nikhil Rathi secures another five-year term as FCA chief amidst UK regulatory overhaul

Nikhil Rathi has been reappointed as the chief executive of the Financial Conduct Authority (FCA) for a further five years, tasked with the government's new mandate to cut back on unnecessary and repetitive regulation, as confirmed by the Chancellor. Rathi, who previously served as a Treasury official and the CEO of the London Stock Exchange, will continue his leadership at the FCA, the UK's principal financial regulator, as reported by City AM. Should he complete this term, Rathi's tenure at the helm of the FCA will reach a full decade. The Chancellor has chosen to maintain stability in the role, highlighting that Rathi's contributions have been "crucial" to the government's ambitious regulatory reform efforts aimed at streamlining the UK's regulatory framework to eliminate perceived impediments to economic expansion. On Christmas Eve, Rachel Reeves and Keir Starmer issued a directive to the heads of the UK's ten leading regulatory bodies, urging them to "tear down the regulatory barriers" they believe are constraining economic progress. This initiative to orientate the UK's regulatory bodies towards promoting growth has led to the departure or removal of several regulatory leaders, including those at the Competition and Markets Authority and the Solicitors Regulation Authority. The campaign has also triggered a significant reshuffle within the financial regulatory landscape, exemplified last month by the merger of the Payments Systems Regulator with the FCA, which aims to minimise redundant regulatory obstacles for businesses. Rathi will oversee the seamless integration of the merger. Upon hearing of his reappointment, he commented: "I am honoured to be reappointed by the Chancellor. The FCA does vital work to enable a fair and thriving financial services sector for the good of consumers and the economy." In the previous month, both the FCA and the Bank of England's Prudential Regulation Authority abandoned their initiatives to regulate firms' diversity, equity and inclusion (DEI) performance. Reflecting on these actions and other measures to reduce regulatory burden, Rathi stated: "I am proud of the reforms we have delivered to support growth, bolster operational effectiveness, set higher standards and to keep our markets clean and open." Reeves expressed her approval, saying: "Nikhil Rathi has been crucial in this government's efforts to reform regulation so it supports growth and boosts investment – I am delighted he will be continuing his leadership of the FCA."

Lloyds Banking Group to transform head office with £200m investment

Lloyds Banking Group is set to pour £200m into the revamp of the Scottish Widows headquarters, making it the financial giant's primary hub in Scotland. The renovation of the Port Hamilton building on Morrison Street, Edinburgh, executed in collaboration with Drum Property Group, pledges to bolster Lloyds' presence in the Scottish capital where approximately 10,000 staff are based, as reported by City AM. For nearly three decades, the building has served as the core office of Scottish Widows and is expected to retain its role post-upgrade in 2027, continuing to oversee pensions and investments. This eight-storey property, spanning 325,000 sq ft and known for its distinctive curved roof, stands out as an iconic edifice in Edinburgh’s financial district. According to Lloyds, this initiative is part of a broader commitment to cultivate a more sustainable and environmentally friendly office network across the UK, advancing towards their net zero ambitions. This endeavour aligns with the group's previous movements, including last year's full refurbishment of the Bristol office and relocation to Leeds’ most eco-efficient office space. However, earlier this month, City AM detailed Lloyds’ plans to shutter its Liverpool facility later this year, a decision affecting around 500 employees. This closure is seen as part of a wider strategy to maintain "fewer, better-equipped" offices and streamline operational costs. In a statement, Lloyds confirmed that no jobs have been cut as part of the closure plans. Instead, employees at the office will be asked to relocate to its Cawley House office in Chester. The bank added that 80 per cent of employees based in Speke are currently working remotely or will be doing so when the building closes. This news follows reports that senior staff at Lloyds Bank may face bonus cuts if they do not attend the office at least twice a week. Chira Barua, CEO of Scottish Widows, commented: "There’s a real buzz in the fintech scene in Scotland and we’re committed to staying right in the centre of it." He further stated: "We’ve made huge progress in connecting customers with their financial futures and we’re starting to see how powerful digital engagement and gamification will be in the future." He also noted the potential to make a significant difference for customers, saying: "There’s huge potential to help make a real difference for our customers’ lives and we’re right out in front building all the parts we need to innovate in a massive way." Sharon Doherty, chief people and places officer at Lloyds Banking Group, added: "We’re creating modern, inclusive, sustainable and fun workplaces where our people love to work." She also mentioned the improvements made to their offices across the UK, stating: "We’ve already made significant improvements to our offices across the UK, with more to come." "And our redesigned home in the centre of Edinburgh will help us connect, collaborate and spark the creativity to deliver great outcomes for our customers." Graeme Bone, group managing director at Drum Property Group, commented on the £200m redevelopment of Port Hamilton as "The £200m redevelopment of Port Hamilton presents an exceptional opportunity for Lloyds Banking Group to upgrade and enhance one of Edinburgh’s landmark buildings and deliver an exceptional working environment for Lloyds colleagues in an unrivalled location."