The British pound fell by around 0.3 per cent on Thursday, following comments from Bank of England governor Andrew Bailey and a steep fall in UK house prices.
Mr Bailey told a parliamentary committee on Wednesday that interest rates in the UK might be close to their peak, hinting at a more dovish mood among the rate-setting Monetary Policy Committee.
Meanwhile, the latest figures from the Halifax showed that house prices in the UK fell 4.6 per cent on an annualised basis in August.
At one point, the pound fell below $1.25, to it's lowest level since June.
The British currency has been on a downwards trend for a couple of months, as a series of data releases pointed to slowing economic activity and demand following 14 interest rate increases.
That led traders to conclude that the Bank of England may come round to the thinking that interest rates might be approaching their peak, something Mr Bailey then confirmed.
Nonetheless, analyst feel there is still at least one 0.25 per cent rise left in the current interest rate cycle, which could come as early as the MPC's next meeting later this month.
“I'm not therefore saying we're at the top of the cycle because we've got a meeting to come but I think we are much nearer to it,” Mr Bailey told British MPs.
Meanwhile, a string of positive economic data in the US recently has raised the likelihood of the Federal Reserve increasing rates.
The release of the latest Institute of Supply Management figures on Wednesday, which beat forecasts and were at their strongest level since February, combined with a rise in the price of oil, has reignited inflation fears and strengthened the dollar.
“We think dollar strength has got further to run and will sustain over the next three months,” said Jane Foley, head of FX strategy at Rabobank.