The pound to US dollar interbank exchange rate has fallen from a height of 1.2295 on Tuesday 27th down to 1.2202 at the time of writing. This is a loss of close to one cent, or -0.76%.
As a result, sterling now stands less than two cents below its multi-decade low versus the greenback. Its weakest of 1.2204 since the 1980s was reached earlier this month on August 10th.
A chief reason why the pound to US dollar interbank exchange rate has continued to weaken is Brexit. Unlike the UK or the Eurozone, America’s economy isn’t directly impacted by the UK’s exit from Europe, and moreover, the USA is the world’s largest economy.
So to refuge from the uncertainty and constantly shifting terrain over Brexit, the world’s money managers tend to buy the greenback, as a safe haven. This lifts demand for the US dollar, which raises its value.
That said, just because the pound has weakened versus the US dollar, this isn’t to say that America’s economy is in the pink.
To the contrary, the US economy is showing growing signs of weakness, which it’s thought are partly because US President Donald Trump and Chinese Head of State Xi Jinping continuing to scale up their trade dispute.
For example, last Thursday 22nd August, we learnt that the US factory sector contracted this month, according to respected watchdog IHS Markit. America’s Manufacturing Purchasing Manager’s Index (PMI) fell to 49.9, below the 50.0 that signals growth. Meanwhile, IHS Markit’s US Services PMI eased down to 50.9, beneath July’s 51.7.
This has sparked concerns among money managers that the US might enter recession in the foreseeable future, especially because America’s current economic expansion is now the longest in history. This may affect the value of the US dollar in the foreseeable future.
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