In European trading on Wednesday, the British pound (GBP) faced a decline against a range of major currencies, marking its second consecutive session of losses against the US dollar (USD) and plunging to a three-month low. This downturn follows the release of data revealing an unexpected contraction in the UK economy.
The US dollar experienced gains in anticipation of significant US inflation data set to be unveiled later in the week, a development that promises insights into the potential trajectory of interest rates.
The GBP/USD currency pair dropped by 0.4% to reach 1.2441, reaching its lowest point since June 23. The session saw a high of 1.2502 after a 0.1% dip on the preceding day, as the greenback staged a rebound.
Grim Economic Data
The most recent data from the United Kingdom paints a somber picture, indicating a 0.5% contraction in GDP during July. This figure falls short of the projected 0.2% recession rate, deepening concerns about the UK economy’s performance and casting doubt on the possibility of interest rate hikes by the Bank of England (BOE) later this year.
In fact, Bank of England Governor Andrew Bailey recently conveyed that the BOE is nearing the conclusion of its current cycle of policy tightening and interest rate hikes, suggesting a cautious approach to monetary policy in light of economic challenges.
The Dollar’s Ascendancy
The dollar index showed a 0.2% increase, marking its second consecutive session of gains against a basket of major currencies.
Later today, all eyes will be on the release of US consumer price data, a crucial indicator for assessing the likelihood of another interest rate hike in the United States come November. Presently, the probability stands at 41%.
These developments in currency markets and economic data will continue to be closely monitored as global financial markets navigate the evolving economic landscape.
