Expectations of interest rate stabilization are weighing on the British pound

Expectations of interest rate stabilization are weighing on the British pound, which is declining below the 1.25 level against the US dollar.

By Raed Alkhedr | @raedalkhedr | 7 September 2023

midday (3)
  • Oil is once again retreating below the $87 per barrel level.

  • Markets are eagerly anticipating the release of US unemployment benefit data this evening.

  • It is anticipated that unemployment benefits will rise by 232k in the past week, compared to the previous 228k.

Concerns about declining demand are exerting pressure on oil

Oil prices experienced a slight decline during Thursday's trading session as worries over diminishing global demand took center stage. Despite OPEC+'s ongoing production reduction policy, disappointing data from China and its current inability to recover, coupled with seasonal demand decreases due to winter preparations, have negatively impacted oil.

Brent crude futures dropped to $90.24 per barrel after a nine-session streak of gains. Similarly, US West Texas Intermediate crude futures fell to $86.30 per barrel following seven consecutive sessions of increases. Earlier in the week, prices managed to register significant gains after Saudi Arabia and Russia announced an extension of voluntary production cuts until the end of 2023, totaling 1.3 million barrels. However, some analysts believe that the oil declines may be temporary. Despite discouraging economic data from China, a closer look at the details reveals a 30.9% rise in China's crude oil imports. It is also important to note that policymakers in China continue to implement stimulus measures that could support the economy in the upcoming period, impacting the performance of financial markets and the real estate sector.

The British pound is experiencing a notable decline against most major currencies

In recent days, the British pound has faced significant drops against major currencies, reflecting increased risk aversion due to disappointing economic data highlighting the challenges facing the UK economy.

Additionally, cautious statements from the Governor of the Bank of England regarding the possibility of interest rate hikes in the September meeting have influenced market sentiment. The prevailing expectations now lean towards the Bank of England halting further rate increases. Furthermore, the previously high inflation rates, which were a key driver for the Bank of England's rate hike policy, are showing signs of slowing down as consumer spending momentum wanes.

Conversely, concerns have emerged about a downturn in the UK's services sector, which is a crucial component of the economy. Recent data indicates a contraction in the sector for the first time since January.

The British pound has been fluctuating below the psychological support level of 1.25 against the US dollar, following indications from the Governor of the Bank of England that the bank is approaching the end of its rate hike cycle. However, any possibilities of rate cuts to prevent an inflation resurgence have been ruled out.