The pounds fell to its lowest level of the week as downbeat economic data and political uncertainty spooked the financial markets. Sterling fell by 1.16 percent to 1.110 against the US dollar on Friday morning. The pound was also down 0.64 percent at 1.14 against the euro.
By the time markets closed, sterling had rebounded and was up 0.56 percent against the dollar to 1.1298, while it had dipped 0.26 percent to 1.1448 against the euro.
It comes as sterling leapt as much as one percent yesterday after Prime Minister Liz Truss announced she was quitting.
Matthew Ryan, Head of Market Strategy at Ebury, said: “Even following Truss’s resignation, the pound is not out of the woods just yet with sterling giving up much of its gains yesterday afternoon.
“Uncertainty in British politics remains rife, which will do little to inspire confidence in UK assets.
But the FTSE 100 managed to claw back its losses from earlier in the day and closed in the green. It was up 25.82 points, or 0.37 percent, at 6,969.73.
Joshua Mahony, Senior Market Analyst at online trading platform IG, said: “The pound finds itself back under pressure today as traders are faced with yet another bout of political uncertainty and economic concerns.
“This morning’s retail sales data highlighted the struggles facing consumers and businesses alike, with people spending 3.9 percent more for 6.9 percent less goods.
“Meanwhile, traders are faced with yet another bout of political uncertainty with Penny Mordaunt officially throwing her hat into the ring for a potentially doomed two-year stint that will likely be dominated by inflation and recession.”
The US dollar pared gains against a basket of currencies today after a report said some Fed officials have signaled greater unease with big interest rate rises to fight inflation, even as they line up another big rate hike next month.
The Wall Street Journal reported Fed officials are barreling towards another interest-rate rise of 0.75 percentage points at their November meeting. Some policymakers have started signaling their desire to slow down the pace of increases soon.
The report said Fed officials are likely to debate then whether and how to signal plans to approve a smaller increase in December.
The dollar index, which measures the greenback’s strength against a basket of currencies, was 0.2 percent higher at 113.2, down from a three-week high of 113.95, hit earlier in the session.
The dollar has risen strongly this year helped by the Federal Reserve’s hawkish stance and robust demand for safe havens amid continuing uncertainty about the outlook for a global economy gripped by inflation. Despite its retreat on the Fed headlines, the dollar index remains near a 20-year high.
Bipan Rai, North American head of FX strategy at CIBC Capital Markets, said: “It’s really hard to bet against the fact that the Fed is going to need to continue to be quite aggressive in its approach going forward. That ultimately means we still see dollar upside.”
Meanwhile, the yen slipped against the dollar for the 13th straight session and was on track for its 10th straight weekly decline. The dollar was 0.43 percent higher against the Japanese currency at 150.8 yen. An extended yen sell-off past 150 yen per dollar to 32-year lows has put markets on heightened alert for further intervention in currency markets by Tokyo.
Japanese Finance Minister Shunichi Suzuki said authorities were dealing with currency speculators “strictly”. Bank of Japan governor Haruhiko Kuroda said the central bank would closely watch the impact of currency moves.