British pound was trading lower against the US dollar on Friday, after reaching a nine-month high earlier in the week, as speculation appeared that economic recovery in the United Kingdom was not sufficiently strong in order to ensure an early raise in the benchmark interest rate.
GBP/USD fell to a session low at 1.6043 at 11:03 GMT, after which consolidation followed at 1.6053, losing 0.65% for the day. Support was to be found at September 25th low, 1.5980, while resistance was to be met at September 29th high, 1.6171.
Bank of England policymakers, scheduled to hold a monthly meeting on policy next week, have said that the bank will maintain its benchmark interest rate at the current record low level, as long as the rate of unemployment drops to 7%. Official data has shown that the rate remained at 7.7% in the second quarter of the year. “Some of the momentum in the early rate hike argument has been lost,” said Jane Foley, senior currency strategist at Rabobank International in London, cited by Bloomberg. “There’s realism coming through because the pound has strengthened so much and there are obvious headwinds facing the economy. People are taking off some of their long positions, in case we see a negative shock”.
Bank of England is expected to keep the benchmark rate at 0.5% and maintain its monthly bond-purchase target at 375 billion GBP, when it announces its policy decision on October 10th, according to a survey by Bloomberg News.
In addition, yesterday the Chartered Institute of Purchasing and Supply (CIPS) in cooperation with Markit Economics said that the services PMI in the United Kingdom remained almost unchanged in the month of September, reaching a reading of 60.3 from 60.5 in August.
Meanwhile, the US dollar was under continuous pressure amid uncertainty over the possible implications on US economic recovery after the partial US government shutdown. President Barack Obama said that there was only “one way out” of this situation for Republican House Speaker John Boehner – to allow a vote on a stopgap spending bill without conditions.
International Monetary Fund head Christine Lagarde said overnight that a failure to lift the US debt limit could threaten the global economy and also warned that US economic growth could fall below 2% in 2013.
Elsewhere, the pound was lower against the euro, with EUR/GBP cross rising 0.51% on a daily basis to trade at 0.8474 at 11:28 GMT. GBP/JPY pair was losing 0.80% today to trade at 155.92 at 11:30 GMT. All in all, the sterling has decreased 0.9% this week, or the worst performing currency among the 10 developed-nation currencies, tracked by Bloomberg Correlation-Weighted Indexes. The US dollar has fallen 0.4%, while the euro has risen 0.2%.