The Bank of England has quietly issued a note of caution on sterling volatility, pointing to the U.S. economy's continued defiance of gravity.
Sources inside Threadneedle Street confirm that internal models are flashing warning signs as the dollar strengthens and American markets remain buoyant despite rate hikes. One senior analyst called it 'a pattern that can't hold.' The BoE's note, obtained by this journalist, urges Treasury officials to prepare for 'unprecedented swings' in the pound-dollar exchange rate.
This comes as the U.S. jobs market refuses to cool.
Uncovered documents from the Federal Reserve show heated internal debates over the risk of a hard landing. Meanwhile, corporate lobbying groups have pushed for a weaker dollar, but the Treasury has so far ignored them. The Bank of England's intervention suggests they see the pound as collateral damage in a global trend that sees the American economy as the last safe haven.
'Every time you think the U.S. is about to crack, it finds a new gear,' one hedge fund manager told me off the record.
The BoE's note stops short of setting a floor for the pound, but it is a clear signal to markets: the old order is shifting. The question now is how long the U.S.
can keep its miraculous run going. The Bank expects further volatility in the coming months and has highlighted the risk of a 'flash crash' event. Treasury hands are said to be concerned, but the government lacks clear tools to insulate the economy.
As one ex-BoE official put it: 'They've tied their own hands with fiscal rules and political constraints.' Meanwhile, the U.S.
appears to be in a sweet spot: inflation is easing, but growth remains resilient. The BoE's note acknowledges this is 'an enviable position' and offers no easy answers for the UK. This story is not about the pound's imminent collapse but about a power shift that leaves the Bank of England with few options.
The next few months will test the resilience of both economies.
