ExchangeRates.org.uk - The Pound lost ground on Thursday with inter-related domestic and global factors undermining the currency.
The Pound to Dollar (GBP/USD) exchange rate dipped to 2-week lows at 1.2860 while the Pound to Euro (GBP/EUR) exchange rate retreated to 1.1865.
Given wider turmoil, the Pound was still broadly resilient. According to Scotiabank; “Sterling is trading a little softer on the session but much of the broader market volatility is by-passing it.” Nevertheless, it sees the potential for GBP/USD losses to 1.2825 or 1.2775.
There was fresh speculation that the Bank of England (BoE) would cut interest rates at next week’s policy meeting which undermined the Pound. In part, renewed speculation was due to global factors.
There has been fresh speculation that the Federal Reserve could cut interest rates twice this year which would make it easier for the BoE to make a move.
Risk conditions remained more fragile with a further liquidation of short yen positions. This liquidation also led to further selling of high-yield instruments including the Pound. Scotiabank commented; “Margin calls across a range of trades where the JPY has been a cheap source of funding—stocks, gold, crypto etc—reflect the broad impact of what looks to be a classic carry trade unwind.”
In this context, increased reservations over the global economy also triggered fresh talk of a BoE rate cut. Jane Foley, head of FX strategy at Rabobank noted; "If the BoE does cut interest rate next week it could be a bit of a set-back for sterling.” She added; "I think we are in for a little bit more volatility. But I do think sterling can continue to grind higher, particularly against the euro."
The CBI industrial orders index dipped to -32 from -18 previously and below expectations of -19, although the overall survey was mixed. According to Ben Jones, CBI Lead Economist; “Sentiment among manufacturers has cooled a little over the past few months, as output growth consistently underperformed expectations. But the near-term outlook for the sector remains positive amid an ongoing recovery in the wider UK economy.”
As far as US data is concerned, the first estimate of second-quarter GDP was an annualised rate of 2.8% from 1.4% the previous quarter and above consensus forecasts of 2.0% Inflation data was mixed with the PCE prices index at 2.3% from 3.1% in the first quarter and below forecasts of 2.6%. The core figure retreated to 2.9% from 3.7%, but above expectations of 2.7%. Initial jobless claims declined to 235,000 from a revised 245,000 last week and just below consensus forecasts of 237,000. Markets were still betting on a September Fed rate cut with dovish forward guidance expected at next week’s meeting.
This content was originally published on ExchangeRates.org.uk