Pound slumps against euro as ECB plots more interest rate rises

The pound has dropped to its weakest against the euro since early 2021 as traders gear up for more interest rate rises by the European Central Bank.

Sterling shed 0.6pc against the euro to 87.18p, while the common currency also made strong gains against the dollar and yen.

The ECB last week raised interest rates by 75 basis points – the biggest increase on record – in an effort to tackle sky-high inflation.

Markets are now bracing for further monetary policy tightening after Joachim Nagel, president of the Bundesbank, signalled over the weekend that more rate rises were coming.

There was some respite for the battered pound as it rose 1pc against a weaker dollar to $1.17 – its highest in almost two weeks and up from a 37-year low.

But sentiment remains downbeat after new figures showed the economy grew just 0.2pc in July, a weaker rebound than expected from the extra bank holiday in the previous month.