Sterling drops to 1-1/2 month low vs rallying dollar after U.S. data 

British-economy

Sterling fell to a 1-1/2-month low against the dollar on Thursday after data showing the United States grew robustly in the second quarter, boosting a view that U.S. interest rates could rise this year.

Investors are still uncertain about when the Bank of England will raise interest rates, given recent volatility in global stock markets.

U.S. gross domestic product grew at a 3.7 percent annual pace, the Commerce Department said on Thursday – far faster than the 2.3 percent reported last month. Economists polled by Reuters had projected a revised rate of 3.2 percent.

“All the financial turbulence means that the September (U.S.) interest rate hike isn’t perhaps as certain as it was previously,” said Dennis de Jong, managing director at UFX.com.

“However, (Fed chair), Reserve Yellen has so far flown as smooth a course as could be hoped, and received wisdom says a hike is still on the way.”

Sterling fell to $1.5398 after the data, its lowest since July 10, and down 0.4 percent on the day. It is on track for its biggest weekly loss since early May.

The pound outpaced the euro, with the single currency down 0.3 percent, trading at 72.91 pence.

The euro was weighed down by comments from a senior European Central Bank official who left the door open for more monetary easing. Peter Praet said on Wednesday the risk of the ECB missing its inflation target has increased due to commodity price falls and weakness in some overseas economies.

Focus is turning to an annual conference in Jackson Hole, Wyoming, attended by many of the world’s top central bankers. BoE Governor Mark Carney is a panelist at the symposium on Saturday where global inflation dynamics will be discussed.

Earlier this month Carney indicated a decision to raise rates could come at the turn of the year, but investors will be keen to hear the BoE’s take on recent events and whether it changes the monetary policy outlook for the near term.

Recent UK economic data has sent mixed signals. The housing market and rebound in core inflation look strong enough to warrant higher interest rates, analysts say, but retail sales figures were well short of expectations.

Source: Reuters – Sterling drops to 1-1/2 month low vs rallying dollar after U.S. data

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