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Sterling holds steady versus the dollar
Global Banking & Finance Review®
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By Tom Wilson and Samuel Indyk
(Reuters) – Sterling was steady against the dollar on Wednesday, holding above a 2-1/2 year low touched a day earlier after data added to signs that a recession may be looming in Britain.
The pound was flat versus the dollar at $1.1829 by 0840 GMT, after recovering slight losses in early trading, with few immediate news catalysts to guide direction..
Sterling had touched its lowest on Tuesday since March 2020 after the purchasing manager’s index (PMI) data showed growth in Britain’s private sector slowing to a crawl in August, with factory output falling and the larger services sector ekeing out only a modest expansion.
The figures added to signs that Britain’s economy will shrink. Sterling has been pummelled by worries around Britain’s surging inflation and declining economy, last week suffering its biggest weekly fall against the greenback since September 2020.
The Bank of England has warned that Britain is likely to slip into a recession at the end of the year, which will last until 2024, as soaring energy bills are set to push inflation above 13% in October.
“It’s difficult to make a compelling buy case for the pound,” said Simon Harvey, head of FX analysis at Monex Europe.
“It is too soon to start a bullish base case for the pound. I think we’ll be looking into the fourth quarter for that, with more supportive fiscal policy and any change in the pace of the Fed’s tightening cycle.”
The pound rose 0.1% versus the euro to 84.12 pence.. The single currency is facing its own headaches, with data on Tuesday showing business activity across the euro zone contracting for a second straight month in August.
(Reporting by Tom Wilson and Samuel Indyk in London; Editing by Clarence Fernandez)
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured by the Consumer Price Index (CPI).
A recession is a significant decline in economic activity across the economy, lasting more than a few months. It is typically identified by a fall in GDP, income, employment, manufacturing, and retail sales.
Currency hedging is a financial strategy used to protect against potential losses due to fluctuations in exchange rates. It involves using financial instruments to offset the risk of adverse currency movements.
The Bank of England is the central bank of the UK, responsible for setting monetary policy, issuing currency, and maintaining financial stability in the economy.
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