Sterling fell as much as 0.7% to $1.211, underperforming other major currencies.

Analysts suggest further losses could be on the horizon, with some predicting a drop to $1.20. This follows a turbulent week for UK assets, marked by a significant fall in the pound’s value and a surge in gilt yields to levels not seen in decades.

Investors are concerned that the recent UK Budget could fuel inflation and hinder economic growth, potentially delaying interest rate cuts by the Bank of England. Gilt yields continued their upward trend on Monday.

However, the UK’s situation is part of a broader market shift. A strong US jobs report and potential tariffs under a Trump presidency have raised concerns about inflation and the pace of Fed rate cuts. Markets now anticipate only one rate cut from the Fed in 2025, City AM reports.

Higher US interest rates strengthen the dollar, making US assets more attractive to investors. This has led to a surge in the dollar index to its highest level since November 2022. The US federal funds rate acts as a global benchmark, influencing bond yields worldwide. While government bond yields have risen across advanced economies recently, UK gilts have been hit particularly hard. Analysts attribute this to the strong pull of US yields, drawing capital towards the US.