ExchangeRates.org.uk - The Pound came under significant pressure on Thursday and selling pressure intensified after a break below the December low against the dollar.The Pound to Dollarexchange rate (GBP/USD) slumped to 8-month lows just below 1.2400 and failed to recover.
The dollar maintained a robust tone amid expectations of a hawkish Fed.
Scotiabank (TSX:BNS) commented; “The first quarter of the calendar year is typically bullish for the DXY and (very) early January trading reflects that trend.”
It added; “strongly bearish trend momentum indicate that risks are skewed towards a drop towards 1.2300, with scope for rebounds now likely limited to the upper 1.24s.”
The Pound to Euro (GBP/EUR) exchange rate also retreated to 1.2025.
The UK PMI manufacturing index also retreated to an 11-month low of 47.0 for the final December reading from the flash reading of 47.3 and 48.0 for November.
Current and expected future cost increases led manufacturers to pro-actively raise their selling prices.
According to Rob Dobson, Director at S&P Global Market Intelligence; “Manufacturers are facing an increasingly downbeat backdrop.
Business sentiment is now at its lowest for two years, as the new Government's rhetoric and announced policy changes dampen confidence and raise costs at UK factories and their clients alike.”
He added; “With costs expected to rise again in early-2025 as the announced Budget changes come into actual effect, the Bank of England is likely to remain cautious about further interest rate cuts despite rising signs of economic difficulties."
The services-sector data for December should be stronger, but markets will also be monitoring evidence of retail spending during the crucial Christmas period.
MUFG senior currency analyst Lee Hardman commented; "At the end of last year data from the UK pointed towards a sharper than expected slowdown to the UK economy, which created a bit more pessimism towards the economic outlook, and triggered a bit of a pound sell off."
He added; "If we were to see the economy in the UK continue to weaken early this year, and the Bank of England started to make noises about potentially being more active in terms of cutting rates in response to that, that could certainly open the door for a weaker pound."
US initial jobless claims declined to 211,000 in the latest week from 220,000 previously and below consensus forecasts of 222,000 while there was a sharp decline in continuing claims to 1.84mn from 1.90mn.
The US PMI manufacturing index was also revised to 49.4 for the final reading from the flash figure of 48.3.
There are on-going concerns that the Federal Reserve will not cut interest rates again in the near term.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence commented; “Firms are concerned that inflation may pick up again, adding to speculation that interest rates will not be cut as much as previously thought likely over the coming year."
This content was originally published on ExchangeRates.org.uk