Today, the British pound is declining by 0.27% against the US dollar, reaching its lowest levels this year, touching the level of 1.25058.
The pound’s declines today came despite a set of positive, better-than-expected data for sectors of the UK economy for the month of February.
However, the shift in expectations this week about when the US Federal Reserve will start cutting interest rates still represents the greatest pressure on the major currencies.
Today, we witnessed the GDP reading for February, which recorded a slowdown in growth, as expected, to 0.1% on a monthly basis. On an annual basis, the economy contracted by 0.2%, which was better than expected at a contraction of 0.4%.
At the level of economic sectors, the services, industrial and manufacturing production sectors recorded better-than-expected growth in February, in contrast to a sharp, larger-than-expected contraction for the construction sector, which shrank by 1.9% on a monthly basis.
In general, today’s data is not bad, but the pound seems to need much bigger surprises than that to be able to confront the dollar.
The US economy surprised the markets through a series of economic figures, labor market data, and inflation, which hammered the hypothesis that seemed well-established for about two months about the start of the interest rate cut process in June, so that today it is way less likely.
The probability that the Fed will cut interest rates by 25 basis points in June is 22%, reaching 16% yesterday and more than 62% a month ago, according to the CME FedWatch Tool.
This shift in expectations pushed US Treasury yields further to their highest levels this year. UK gilt yield also began to rise, especially after attention shifted to August as the first date for cutting interest rates. However, the yield gap had begun to rise, reaching this week its highest level this year in favor of Treasury bonds when it touched 0.408% last Wednesday for the 10-year yield gap.
