Forecasts of three more moves to come in 2017 from US rate-setters contrasted with the Bank of England, which held interest rates unchanged today at just 0.25%.
Threadneedle Street is not expected to budge for at least two years while Brexit negotiations cast a shadow over the UK economy.
CMC Markets analyst Michael Hewson said: “What has become clearer is that the policy divergence that has been in place between the Fed and other central banks has just got bigger, and this is likely to put further upward pressure on the US dollar.”
Although chairman Janet Yellen said the Fed was operating under a “cloud of uncertainty” following Donald Trump’s election win, the forecasts from the world’s most powerful central bank accelerated a rout in bond markets begun by the President-elect’s spending pledges.
The Fed’s closely watched “dot-charts” showed 11 of its 17 voting rate-setters expecting three hikes next year.
European debt, including German bunds, also sold off along with traditional safe-haven gold and the Japanese yen, which sank to a 10-month low against the dollar. The euro hit a 21-month low of $1.0468 at one point.
