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Monthly Wrap: GBP – Pound briefly touches six-month low amidst concerns over the UK’s economic outlook

Philip McHugh September 17th 2021 - 2 minute read

By Philip McHugh on September 17, 2021

Key takeaways:
–              Pound tumbles to amidst questions over the UK’s economic resilience.
–              Hawkish BoE expectations help Sterling to recoup losses.
–              GBP Monthly lows: €1.16, $1.36, AU$1.85, NZ$1.93, C$1.72
–              GBP Monthly highs: €1.17, $1.39, AU$1.91, NZ$2.00, C$1.76

The pound traded in a wide range over the past month, mostly as a result of heightened uncertainty over the UK’s economic recovery through the second half of 2021.

This comes as business groups have grown increasingly vocal about the pressures they are facing due to staff shortages and supply chain constraints, with GBP investors fearing these issues could stymie the UK’s economic growth in the coming months.

Alongside concerns over elevated coronavirus cases in the UK, this pulled the rug out from beneath the pound in mid-August, sending the GBP/USD exchange rate tumbling to a six-month low.

However, the pound has since been able to claw back a good portion of these losses, with GBP exchange rates firming through the first part of September.

This uptick in Sterling sentiment partly comes in response to an improving market mood, as well as some robust employment and inflation figures.

This has in turn fed into speculation that the Bank of England (BoE) will begin tightening its monetary policy in the near-term, something which was reinforced by some hawkish comments from BoE Governor Andrew Bailey, who suggested that the UK economy has met the BoE’s ‘minimum conditions’ for considering whether to begin increasing interest rates.

Looking ahead, a key focus for GBP investors in the coming month will be the BoE’s latest interest rate decision.

Traders will be eager to see whether the majority of the Monetary Policy Committee (MPC) believes that it is suitable for the bank to start tapering its bond buying programme, with the pound likely to appreciate sharply if this turns out to be the case.

However, any upside in Sterling could remain limited so long as investors see clouds continue to hang over the UK’s economic prospects.

Written by
Philip McHugh

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