LONDON: On Wednesday, sterling remained stable versus the dollar, hovering above a 2-1/2 year low reached the day before as more evidence pointed to the possibility of a recession in Britain.
Despite minor gains in early trading, the pound was unchanged against the dollar at $1.1829 during the day, as there were few fresh news factors to influence movement. The purchasing manager's index (PMI) statistics revealed that growth in the British private sector slowed to a crawl in August, with factory output decreasing and the larger services sector managing just a slight rise. On Tuesday, the pound reached its lowest level since March 2020.
The results increased the indications that the British economy may contract. Worries about Britain's rising inflation and deteriorating economy have severely weakened the pound, which this week had its largest weekly decline versus the dollar since September 2020. In light of the fact that rising energy prices are expected to push inflation above 13% in October, the Bank of England has issued a warning that Britain is likely to enter a recession at the end of the year that will endure until 2024.
The pound is tough to buy, according to Simon Harvey, head of FX analysis at Monex Europe. "For the pound, it is too early to formulate a positive base case. With more benevolent fiscal policy and any adjustments to the pace of the Fed's tightening cycle, I believe we'll be keeping an eye on the fourth quarter for that."
The euro-pound exchange rate increased by 0.1% to 84.12 pence. Due to data released on Tuesday showing that corporate activity in the eurozone declined for a second consecutive month in August, the single currency is experiencing its own headaches.
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