The Pound-Dollar rate could test fresh lows if UK PMIs weaken, while resilient US activity may reinforce Federal Reserve rate hike expectations.
The Pound US Dollar (GBP/USD) exchange rate struck its worst levels since late July on Tuesday morning following the publication of the UK’s latest borrowing data.
At the time of writing, GBP/USD was trading at around $1.3356. Slightly down on Tuesday’s opening levels, but above the almost two-month low struck earlier in the session.
Pound to US Dollar (GBP/USD): 1.3356
DAILY RECAP:
The Pound (GBP) faced fresh selling pressure on Tuesday following an unwelcome jump in British government borrowing, which raised new questions about the Treasury’s fiscal flexibility ahead of next month’s Budget.
Official data from the Office for National Statistics (ONS) showed public sector net borrowing surged to £18.3bn in August, well ahead of the projected £15.7bn.
This unexpected deficit expansion highlights the acute fiscal constraints facing Chancellor John Healey, whose fiscal headroom continues to shrink ahead of his inaugural budget next month.
The US Dollar (USD) initially firmed on Tuesday, buoyed by risk-off flows and hawkish Federal Reserve interest rate expectations.
However, the ‘Greenback’ then pared almost all of its gains on reports that Iran is willing to reopen the Strait of Hormuz if the US takes steps to reduce military pressure.
The news sparked a pullback in global oil prices, with Brent crude slipping back below $100 per barrel for the first time in two weeks.
However, the recovery in risk appetite remained modest, as the proposed reopening remains conditional and the US has so far shown no signs it is willing to accept Tehran’s terms.
Near-Term GBP/USD Forecast: Limited Data to
Looking ahead, the Pound to US Dollar (GBP/USD) exchange rate may test fresh lows in mid-week trade with the publication of the UK’s preliminary PMIs for September.
Consensus forecasts predict a moderation of activity across both the manufacturing and services sectors as the third quarter draws to a close.
A confirmation of softer business activity could dent investor appetite for the UK currency, particularly if traders bet that weaker domestic momentum will ensure the Bank of England (BoE) remains cautious regarding future interest rate hikes.
Meanwhile, while not as close watched as the ISM releases, the latest US S&P PMIs could influence the US Dollar on Wednesday afternoon.
Continued resilience in the US private sector is likely to cement Fed rate hike bets and underpin USD demand.
Our currency coverage draws on live market data, official economic releases and published bank research.
