• Tue. Apr 23rd, 2024

The Pound’s Recovery Is Slowing Down as UK Industry Activity Continues to Drop

Leon Kramer

ByLeon Kramer

Oct 3, 2023

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  • The Pound Sterling is currently encountering offers near 1.2220, primarily due to a prevailing dampened market sentiment.
  • There exists a prevailing sense of uncertainty among investors regarding the ability of UK Prime Minister Sunak to effectively deliver on his commitment to reduce inflation by fifty percent before the conclusion of the current calendar year.
  • It is anticipated that Jeremy Hunt will propose an increase in the minimum wage to provide workers with a degree of respite from the challenges posed by elevated inflation rates.

The Pound Sterling (GBP) experienced a reversal of its previous gains in response to the S&P Global’s report, indicating a continued decline in the United Kingdom’s Manufacturing PMI for the 14th consecutive period. Concurrently, the US Dollar displayed a resurgence in anticipation of Federal Reserve (Fed) Governor Jerome Powell’s forthcoming speech.

The GBP/USD pair is currently facing challenges in facilitating the United Kingdom’s acquisition of knowledge in effectively managing the consequences arising from the implementation of elevated interest rates by the Bank of England (BoE).

The Bank of England has decided to halt its previous course of policy tightening after implementing a 5.25% interest rate increase, with the primary objective of safeguarding the economy against any potential worsening of the prevailing deceleration.

Anticipated is a notable level of volatility in the Pound Sterling shortly, as UK Finance Minister Jeremy Hunt is expected to address raising the minimum wage and potentially disregard the implementation of tax cuts during the annual Conservative Party conference. 

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The Pound Is Under Pressure as the Dollar Rises

  • The Pound Sterling’s recovery attempts have proven unsuccessful, leading to a reversal and a decline to a six-month low, reaching approximately 1.2100. This downward trend is primarily driven by investor concerns surrounding the potential risks of an economic recession in the United Kingdom.
  • The demand outlook has been negatively impacted by the Bank of England’s decision to raise interest rates and the potential risks of consumer inflation resulting from a temporary halt in policy tightening.
  • The recovery of the GBP/USD pair could not be sustained, as per the report by S&P Global. It highlighted that the Manufacturing PMI for September continued to persist below the critical threshold of 50.0 for the 14th consecutive time. The economic data exhibited a nominal improvement, registering a value of 44.3, surpassing both the estimated value and the previous release of 44.2.
  • Like other advanced economies, the United Kingdom’s manufacturing sector is currently experiencing a period of susceptibility. The labor demand and Services PMI indicators have exhibited favorable performance in the past; however, they are presently encountering challenges stemming from stringent monetary policy measures and persistent inflationary pressures.
  • In recent months, employers in the United Kingdom have undertaken measures to streamline their workforce to enhance operational efficiency by exercising prudent cost management strategies amidst an environment characterized by uncertain demand dynamics. The Services Purchasing Managers’ Index (PMI) has consecutively fallen below the critical threshold of 50.0, signifying a notable decline in service-related operations.
  • The housing market in the United Kingdom is subject to the persistent repercussions stemming from elevated interest rates. On Friday, the Bank of England (BoE) released a report indicating a significant decline in credit approvals for house purchases, with a recorded figure of 45,354. This figure falls short of the expectations set by Reuters, which projected a value of 49,532. The decline in credit approvals can be attributed to the rise in mortgage rates.
  • Moving forward, the attention of investors will be directed towards the forthcoming announcement regarding an increase in the minimum wage by the United Kingdom’s Financial Minister, Jeremy Hunt, during the annual Conservative Party conference. Throughout the weekend, UK Hunt made an announcement wherein he expressed the organization’s anticipation for confirming the recommendation for the upcoming year by the esteemed Low Pay Commission. The individual asserts their intention to implement a forthcoming adjustment, stipulating that the recommended amount shall be augmented to a minimum of 11 pounds per hour in the ensuing year, as per the report by Reuters.
  • Jeremy Hunt decided to exclude the possibility of implementing tax reductions before the forthcoming mid-year fiscal statement in November. This strategic move aligns with the objective of UK Prime Minister Rishi Sunak to fulfill his commitment to reducing headline inflation by fifty percent before the conclusion of the current calendar year.
  • In the current market climate, there has been a noticeable shift in sentiment as investors tend to disregard the potential risks associated with a global economic deceleration. The US Dollar Index (DXY) is encountering significant selling pressure near the 106.00 level.
  • The USD index exhibited notable volatility on Friday, notwithstanding the release of a modest core Personal Consumption Expenditure (PCE) report for August. The monthly Core Personal Consumption Expenditures (PCE) index experienced a nominal growth rate of 0.1% in August, which deviated from both market expectations and the previously reported figure of 0.2%. The annualized Core Personal Consumption Expenditures (PCE) has experienced a decrease of 3.9%, aligning with the anticipated outcome following the previous release of 4.3%.
  • The utilization of the Core PCE as the Federal Reserve’s favored inflation gauge has contributed to a diminished probability of an additional interest rate increase by the central bank within the current year.

The Value of the Pound Has Decreased to Close to 1.2100

The value of the Pound Sterling has experienced a reversal, reaching a six-month low in the vicinity of 1.2110, primarily due to the resurgence of a risk-off sentiment. The GBP/USD pair is currently experiencing a decline in its outlook and is anticipated to relinquish its previous gains.

The GBP/USD pair witnessed an increase in buying interest due to oversold conditions in momentum oscillators. The Cable is expected to exhibit a potential mean-reversion movement towards the vicinity of the 20-day Exponential Moving Average (EMA) situated at 1.2340. The bias is relatively weak, as the Cable trades below the 200-day exponential moving average (DEMA) at approximately 1.2465.

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Leon Kramer

Leon Kramer

Leon Kramer, a renowned financial author, enlightens Main Forex News readers with his deep understanding of currency markets. His years in global finance, combined with an intuitive grasp of trends, delivers insightful, up-to-the-minute foreign exchange analysis.

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