Pound Weakens as Global Financial Market Sentiment Deteriorates

September 12, 2021
Pound Weakens as Global Financial Market Sentiment Deteriorates September 12, 2021 Lennox Hamilton

A sharp downturn in global market mood prior to the weekend fueled demand for safe-haven assets at the cost of the British pound. The Pound had been rising versus the Euro and the Dollar, but reports that the US will put pressure on China over tariffs caused risk appetite to worsen.

Top stock markets gave up gains as investors reduced their holdings after reports that the Biden government is considering a fresh probe into Chinese subsidies and their impact on the US economy. Thus according Bloomberg, the action was intended to put weight on Beijing on trade, raising investor concerns that a fresh worsening in ties between the world ’s two biggest is on the horizon.

The conventional safe-haven currencies, the dollar, yen, and franc, benefitted from the shift in attitude. Currency that tends to do well when markets are rising, such as the Australian Dollar and South African Rand, have trimmed previous advances.

The pound is trading in the center of the risk spectrum, having given up previous gains versus the Euro and Dollar. On Friday, the Pound as well as other ‘risk on’ currencies rose on reports that Biden had phoned Chinese President Xi Jinping in an effort to repair ties.

On Thursday night, the leadership allegedly talked for 90 minutes, their first meeting since February. “On Thursday, reports of a phone conversation between US President Joe Biden and Chinese leader Xi Jinping boosted confidence. This fueled rumors of a ceasefire between the two countries, after ties had deteriorated significantly during Trump’s administration” Fawad Razaqzada, Market Analyst at ThinkMarkets, agrees.

“The Chinese yuan rose, providing tailwind boost to other EM currencies, and also the Australian and New Zealand dollars,” he says. The pound-to-euro exchange rate fell to 1.17 after reaching a peak of 1.1736 earlier on Friday.

The pound-to-euro exchange rate fell to 1.3846 after reaching a high of 1.3889. The Pound’s decline acts as a good reminder that the currency’s fluctuations are being influenced by a variety of factors at the moment.

In a previous report, Pound Sterling Live highlighted four positive events that aided Sterling’s rise in the second part of the previous week.

1) After the European Central Bank’s (ECB) September policy meeting, the Pound extended previous advances to three-quarters of a percentage versus the Euro.

2) The Bank of England will raise interest rates. On Wednesday, Bank of England Governor Andrew Bailey stated that half of the Monetary Policy Committee members think the minimal criteria for a rate increase have already been met.

3) The unfavorable response to UK tax increases was exaggerated. The pound dropped in the middle of the week as a result of the UK government’s announcement of tax increases, although the move was exaggerated.

“Despite the possible dangers to development from a larger taxation base,” says Charles Porter, foreign currency expert at SGM Foreign Exchange Ltd.

4) At the beginning of this month, the rebound gained traction.

Short-term statistics and polls indicating that the UK economic recovery is strengthening again are by far the most significant positive drivers driving latest GBP movement. People are coming back to their workplaces after lock down restrictions were eased in mid-August and the finish of school vacations fell in the initial week of September.

As per the ONS, eEffect of Covid-19 study, business activity increased by 1.2% m-o-m in August, up from 0.6% in July. As per statistics from OpenTable, Springboard, and Apple, restaurant diner numbers, shop footfall, and transit use all increased in August.

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