The latest economic data shows a grim picture as the pound sterling and euro record their all-time low against the US dollar, making many investors nervous.
The exchange rate between the pound and the dollar (GBPUSD=X) at the time of writing was $1.21, which means that £1 is equivalent to $1.21. The euro-to-dollar exchange rate (EURUSD=X) was $1.05 at the time.
The head of investment at Interactive Investor, Victoria Scholar, stated, “The concept of higher and longer interest rates is providing a tailwind to the greenback, which is trading at 10-month highs, sending the euro and the pound to six-month lows against it.”
In addition, she pointed out that the pound is on track to have its worst month since the fiscal mess surrounding the mini-Budget last year, reflecting the higher chance of a recession in the UK as rising borrowing costs weigh on the economy.
GBP and EUR underperform their counterparts.
While the strong dollar can be mostly blamed for the movements, both currencies are currently underperforming their G10 peers, according to Matthew Ryan, head of market strategy at financial services company Ebury.
“Aside from valuation, concerns over the state of both economies have contributed to the sell-offs. Economic news out of the UK, in particular, has turned decidedly bleak in recent weeks.”
This is about the retail sales and business activity PMI readings from last week, both of which fell short of experts’ predictions. The UK economic surprise index for Citigroup is currently hovering just at zero, its lowest point since March.
“News out of the euro area has not been much better. While the composite PMI of business activity came in above consensus in September, the index remained comfortably below the level of 50, representing contraction (47.1),” Ryan continued.
Technical recession so far avoided
The Q1 GDP figure was revised upward, preventing a technical recession in the common bloc despite earlier reports to the contrary.
“That said, recent data makes for pretty grim reading, and another contraction in the bloc’s economy appears increasingly likely once the Q3 GDP data is released later in the year,” Ryan stated further.
Pound sterling outlook
Regarding the long-term outlook for the pound sterling, Patrick Reid of Adamis Principle said in an interview that there is a lot of data to suggest that it will remain weak for several reasons.
“One, US yields are screaming higher; two, hedge funds are unwinding their gilt purchases after the pause from the Bank of England; and thirdly, subdued growth is mounting on fears of stagflation.
“The only potential turnaround would be an increase in growth and renewed weakness in UK data. Apart from that, nothing will change,” he continued.
- Published By Team Timeswire