The pound saw a rise against the dollar on Wednesday, marking the first increase in almost a week. The rise was in line with a retreat in the US currency and came after a survey revealed that UK business activity in September was not as subdued as initially feared. The final reading of the S&P Global UK Services Purchasing Managers’ Index (PMI) for September fell to 49.3 from 49.5 in August, remaining below the 50 threshold for growth. Although this reading was an eight-month low, it surpassed the preliminary reading of 47.2 that had shocked investors earlier in the month.
The final PMI included responses from companies surveyed between 20 September and 27 September. This period followed the release of data showing a surprising drop in British inflation in August, as well as the Bank of England’s unexpected decision to keep interest rates unchanged on 21 September.
On the day, the pound was up 0.4% against the dollar at $1.2123, having fallen for the past three trading days. However, it is uncertain if this strength will be short-lived due to the rise in US government bond yields. The pound also rose 0.1% against the euro to trade at 86.63 pence, but it remained close to the four-month lows seen in late September, around 87 pence.
Market strategist Fiona Cincotta from City Index stated, “With inflation cooling and concerns rising over a prolonged economic slowdown, the market is convinced that the BoE has reached the end of its hiking cycle, which is keeping pressure on the pound.” Money market traders believe there is a 22% chance of another rate hike from the Bank of England this year, but this is expected to be the final increase for this monetary policy cycle. Just three months ago, traders had anticipated that UK interest rates would peak above 6% around the middle of next year. One of the reasons the dollar has remained strong in recent weeks is due to expectations that US interest rates may rise at least once more this year and remain higher than those in the UK.
Chris Beauchamp, IG’s chief market analyst, commented, “Buyers will need a close back above $1.22 to indicate that a low could be in place in the short term. This is where Friday’s bounce stalled as selling pressure revived.” Against the yen, the pound increased by 0.3%, moving away from Tuesday’s 10-week lows. The yen had hit its lowest point in a year against the dollar on Tuesday before experiencing a sudden rally, leading to speculation about potential intervention. However, currency experts believe that official buying was highly unlikely to be the driving force behind the yen’s turnaround, as the Ministry of Finance and the Bank of Japan are currently focused on volatility rather than outright trading levels.
More detail via Yahoo Sports here… ( Image via Yahoo Sports )