Pound continues to gain against euro and dollar as recession fears fade

The pound gained ground again on Tuesday (6 September) as the momentum generated by upbeat economic data in the previous session, when the pound hit a seven-week high against the dollar, continued.

By mid-afternoon, sterling was up 0.39% against the dollar, exchanging hands at €1.3353 and gaining 0.20% against the euro to €1.1955.

On Monday, the pound hit the highest level in almost two months against the dollar after data showed Markit’s Purchasing Managers Index for the services sector rising from a four-year low of 47.4 in July to 52.9 in August, comfortably beating expectations for a 50 reading.

Coupled with positive reports on the health of the manufacturing and construction sectors released last week, the data look to have allayed fears of Britain entering a post-Brexit vote recession. However, data released on Tuesday was as upbeat as areport from the British Retail Consortium showed like-for-like sales fell 0.9% from the same period a year ago compared to a 1.1% increase in July.

Sterling could come under pressure on Wednesday, when Mark Carney, governor of the Bank of England, will speak in London.

“It will be a difficult task as he will have to answer to the Brexit supporters,” says Naeem Aslam, chief market analyst Think Markets UK.

“If he has done too much to weaken the British pound he will be on the firing line. The honest answer is that no one really knows what would have happened if he had been silent.”

Elsewhere, the dollar was on the back foot against both the euro and the yen, losing 0.05% against the former to 0.88 euro cents and 0.08% against the latter to ¥103.35.

Meanwhile, the Australian dollar gained against most of its peers after the Reserve Bank of Australia decided to keep its cash rates steady at 1.5%. Australia’s central bank said its decision was based on factors such as continued growth, low inflation, commodity prices and mixed labour market data.

“Unless the dollar strengthens, the outlook for growth weakens and/or underlying inflation is weaker than expected, the RBA is unlikely to feel the need to cut rates in November,” said analysts at Capital Economics.

“This doesn’t mean that rates won’t go lower. While we don’t expect underlying inflation to fall further, we don’t think it will rise towards the bottom of the 2-3% target range next year as the RBA expects.” – IBTimes

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