The pound has reached its lowest point against the dollar in six months and its weakest point against the euro in four months, as concerns in various asset classes continue to impact the currency. This comes as the Bank of England (BOE) reevaluates its rate outlook for the future, causing further uncertainty in the markets.
Last week, the BOE decided to keep interest rates on hold, marking the first time it has done so since December 2021. The decision was influenced by signs that economic growth is slowing down. Prior to this meeting, market expectations pointed towards a likely 25 basis point rate hike in 2023, if not during that specific meeting. However, as of Monday, the expectations for another rate hike this year have fallen to around 40%.
This shift in expectations highlights a reversal of the trend earlier this year, when the pound was boosted by the belief that the Bank of England would continue to raise rates for a longer duration than the European Central Bank and the Federal Reserve.
On Monday, the pound dropped by as much as 0.25% to $1.2213, its lowest point since March 2023. However, it later stabilized and traded flat at $1.2242 for the rest of the day. The pound is currently on track for a monthly loss of 3.4%, marking its biggest decline since September last year when it was affected by a strong dollar and the economic policies of former Prime Minister Liz Truss.
The euro also experienced a brief surge on Monday, reaching a level of 87.03 pence, its highest point since May. It has since settled slightly below that level.
Nick Rees, an FX market analyst at Monex Europe, explained that the concerns surrounding China’s real estate market are spilling over into the European session, thus impacting equity markets, the euro, and the pound. Rees also noted that this is in addition to the impact of the Bank of England’s decision last week. He stated, “Markets are now thinking about what the Bank is seeing in the economy.”
The global stock markets faced declines on Monday, partly influenced by troubled developer China Evergrande’s announcement that it is unable to issue new debt due to an ongoing investigation into its main domestic subsidiary.
On Friday, British business activity data was released, revealing a tougher September for companies than anticipated. The Purchasing Managers’ Index dropped to its lowest point since the lockdown in January 2021, further highlighting the challenges faced by businesses.
The continued uncertainty in various asset classes, coupled with the Bank of England’s reassessment of interest rates and the impact of events in China, are likely to contribute to the fluctuation in the pound’s value in the coming months.
More detail via Yahoo Sports here… ( Image via Yahoo Sports )