LONDON, Sept 22 (Reuters) – The pound fell for a third
day on Wednesday, driven lower by the strength of the dollar,
which got a lift from investors pricing in a higher chance of a
string of US rate rises over the coming months, even as the oil
price trades below $100 a barrel.
Sterling was around $1.328, down 0.45% on the day,
even with oil futures dropping below $99 again, as investors
clung on to evidence that supply from the Middle East was slowly
improving, while optimism grew over a possible diplomatic
breakthrough between the US and Iran.
Growth in British business activity cooled this month and
inflation pressure built, a survey showed on Wednesday, an
awkward backdrop for finance minister John Healey ahead of his
first budget in October.
The S&P Global UK Services Purchasing Managers’ Index (PMI)
fell in September to 51.7 from 52.5 in August, a three-month
low, according to “flash” or preliminary data. A Reuters poll of
economists had pointed to a reading of 52.0.
“Growth in Britain’s economy has been remarkably resilient
so far this year, though we think that a slowdown is almost
inevitable during the remainder of the year – energy costs have
risen, borrowing costs are up, the jobs market continues to
weaken and political uncertainty looks set to rear its ugly head
again as we approach budget day next month,” Matthew Ryan, head
of market strategy at Ebury, said.
“We expect this to keep sterling under pressure in the
near-term, though we do contend that sterling appears a bit
oversold at current levels.”
Money markets show traders expect UK rates to be around a
full percentage point above the current rate of 3.75% this time
next year, which would imply four quarter-point hikes between
now and then.
They assign roughly a 65% chance of a rate rise at the BoE’s
November meeting, which falls right after the Autumn Budget,
with a December hike seen as a done deal.
