Sterling Is Losing Ground

Sterling fell slightly on Friday but was still close to its highest level in over seven months against the US dollar.

Investors anticipate that the British economy’s slowing will bring the Bank of England’s (BOE) tightening cycle to an end soon, potentially weakening the pound in the short term.

According to a survey released on Tuesday, private-sector economic activity in the United Kingdom fell at the fastest rate in two years in January.

The BOE appears to be on track to raise its main interest rate by half a percentage point to 4% on February 2. However, economists will look for signs that this 10th consecutive rate hike will be the last.

The sterling dropped by 0.25% against the US dollar, trading at $1.238. On January 23, it reached its highest level since June 10 at $1.2447.

The US dollar index was mainly steady. Traders braced for a critical week in which the central banks in charge of the greenback, pound, and euro will meet.

The pound was 0.2% lower against the euro, trading at 87.95 pence per euro.

However, some analysts believe the pound will rise in the medium term because markets have already priced in the British economy’s worst-case scenario.

Weak USD

In the first month of 2023, the US dollar weakened against its peers as the Federal Reserve lost clout in currency markets and investors shifted their focus to the policies of other major central banks.

The Fed’s significant rate increases enthralled investors during the first nine months of 2022, which led to a rush into the dollar. However, as the US Federal Reserve has slowed its rate hikes, the currency has fallen in value against its peers.

The dollar has dropped 1.5% against a half-dozen major currencies in January, putting it on track for its fourth consecutive monthly decline. It is currently trading at levels not seen since May 2022.