British Pound Struggling Due To Economy Worries

On Monday, the British pound was holding onto levels of $1.20 against the US dollar, as traders were concerned about the performance of the currency. This was after the recent data turned out to be dismal, just before the US Federal Reserve will hold its policy meeting this week.

The pound’s value

On Friday, the Sterling was trading at a high of $1.2064, which is the highest it has been in three weeks. But, it was a shade lower on Monday against the US dollar and was holding onto levels of $1.2040. The currency had risen briefly during the day to touch highs of $1.2085 before it gave away its gains.

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As far as the euro is concerned, the pound held steady against it for a value of 85.02 pence. Market analysts said that the recovery of the UK economy after the pandemic was lagging behind that of the rest of the G10 countries. Furthermore, Brexit was also making inflation worse in the British economy, which makes the Bank of England’s policy extremely complicated.

Economic data

The growth in businesses in Britain slowed to its lowest possible pace in July in 17 months and an industry survey showed that inflation had also eased. Inflation is becoming a major problem for Britain’s economy and is on course to reach the double digits, which was primarily driven by the rise in fuel prices.

Even though businesses are struggling and consumer spending is also down in Britain, the Bank of England is still expected to increase the interest rate again. Moreover, this time they are expected to hike it by 50 basis points in their policy meeting scheduled for August 4th.

According to the latest positioning data, traders are consolidating their bearish bets on the British currency at a value of $4.2 billion, which is close to the two-year peak they had hit in May at $6.2 billion.

Other factors

There are other factors that can also have an impact on the British pound moving forward. The political climate in the UK will also affect the currency’s value, with the race between the two candidates of the Conservative party ongoing.

The fiscal policy of the two candidates, Liz Truss and Rishi Sunak, is quite different and this will affect the pound’s reaction, depending on who is chosen. The decision is expected to be announced in September, but whoever replaces Boris Johnson will inherit a difficult situation, considering that the British economy is struggling.

Moreover, investors are also focused on the monetary policy meeting of the US Federal Reserve, which is scheduled for next week. It is expected to increase the interest rate by 75 basis points and this will undoubtedly give support to the dollar, which is regarded as a safe-haven asset. Appreciation in the dollar means that other currencies will take a hit and this also includes the British pound.

The Bank of England’s meeting on August 4th is also going to have some impact, with interest rates rising more than expected.

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