British Pound Falls To Multi-Month Low Against USD As Fear Rule Markets

Updated:

The British pound (GBP) plugged its losing streak against the dollar (USD) on Tuesday after the latest Purchasing Managers’ index (PMI) data showed that business activities in the UK slowed as expected by economists.

According to a poll of economists, the forecast for the UK PMI was to fall 51.1. The composite estimates dropped from 52.1 in July to 50.9 in August.

That said, Sterling dropped to a fresh 30-month low against the dollar in the late Asian session today, with the GBP/USD pair falling to 1.1717. The PMI data slowed this fall, which previously threatened to breach the 1.1700 mark. At press time, the currency pair trades at neutral conditions at 1.1765.

The US Dollar Index (DXY) has refreshed its previous multi-decade high recorded in mid-July. This rally has caused the euro (EUR) to lose the $1 foothold again, with the EUR/USD pair bottoming at 0.9899 in the London session on Tuesday. This comes amid renewed concerns that an energy supply shock could continue to fuel inflation and make a recession in the Eurozone more likely.

Is A British Pound Fall to 1.1500 Against The Dollar Likely?

Commenting on the price dynamics of the pound following the PMI release, Roberto Mialich, a strategist at Unicredit, noted: “The pound remains weak and might fall further – probably even down to 1.15 against the greenback – due to recession fears in the UK and despite PMI data roughly in line with expectations.”

Analysts now claim Sterling is no longer positively correlated with interest rates as worries over an impending recession dominated the market outlook, eclipsing the likelihood of further monetary policy tightening by the Bank of England.

For the EUR/GBP pair, Analysts at ING explained:

“EUR/GBP should keep trading in tighter ranges, as markets see the eurozone’s and the UK’s economic outlook following similar rocky paths. Oscillations within the 0.8400-0.8500 range may continue to rule in the near term.”

Meanwhile, a report released by the CFTC showed that speculators’ net long positions on the dollar had spiked to notable highs, while net shorts on the euro increased as well.

Kit Juckes, a macro strategist at SocGen, noted: “CFTC data suggest that August saw euro (net) short positions grow, but sterling ones shrink back. The market is still short sterling, but not short enough to offset the threat from a weakening economy and a political vacuum.”

 

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Azeez Mustapha

Azeez Mustapha is a trading professional, currency analyst, signals strategist, and funds manager with over ten years of experience within the financial field. As a blogger and finance author, he helps investors understand complex financial concepts, improve their investing skills, and learn how to manage their money.