Pound loses value as US services data boosts the Dollar
Pound sterling opens softer this morning after losing value against the dollar. The sell-off begun during yesterday afternoons session. Cable (GBPUSD) rates have dropped below the key 1.25 handle which could be a signal of things to come. The pairing is currently tracking close to the 3-month low which represents a real opportunity for dollar sellers.
ISM PMI data confirmed an expansion in the US services sector last month. A reading above 50 signals an expansion in the sector. August’s data came in at 54.5 vs expectations of 52.5. The greenback strengthened against most of its major counterparts following the release.
USDEUR and USDGBP are both trading close to 3-month highs. DXY (dollar index) is the highest it has been since March.
A shift in USD strength could signal a shift in global risk appetite. Economic woes in China have been widely reported. Several of their economic data releases missed expectations and some economists have reduced predictions for GDP forecasts to well below the government’s target of 5%.
In the UK, data released by Halifax confirmed house prices have dropped 4.6% Year-on-year and 1.9% month-on-month vs expectations of -3.45% and -0.3% respectively. This is a clear signal that higher interest rates are beginning to have a strong affect on the housing market.
UK interest rates are at their highest since 2008, and the Bank of England are expected to raise them again later this month in a bid to bring inflation close to their 2% target. Higher interest rates will start negatively affecting the economy and could cause the pound to weaken moving forward.
Forecast data from Barclays suggests the pound will soften further against the euro and dollar in the next 2-3 months. GBPEUR remains within range of the yearly high, despite the recent sell-off.
Markets will closely watch the release of EU GDP data later this morning. A reading that differs to the consensus could cause further volatility.
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