The Pound Sterling has recently plummeted to $1.2630, erasing all its gains for 2024 after a brutal seven-week losing streak, marking its worst performance in decades. This decline represents a 6.3% drop from its peak of $1.3430 in late September 2024. The downturn is attributed to a combination of disappointing economic indicators and shifting market dynamics, including a contraction of 0.1% in UK GDP for September, which fell below expectations. [31449965]
In addition to the GDP contraction, the Bank of England made headlines by cutting interest rates on November 7, 2024, a move that has further weakened the Pound. Analysts expect the Bank of England to maintain these lower rates in December, while the Federal Reserve is anticipated to cut rates by 25 basis points, creating a contrasting monetary policy environment between the UK and the US. [31449965]
The strengthening of the US Dollar, driven by the 'Trump trade' and anticipated tariffs, has also played a significant role in the Pound's decline. Markets are bracing for the potential impacts of a second Trump administration, which has led to a bearish sentiment in GBP/USD trading. The recent selloff has reached oversold conditions, with the Relative Strength Index (RSI) at 30, indicating a potential for recovery if inflation data exceeds expectations. [4c4373c4]
Despite the Pound's struggles against the Dollar, it has shown some resilience against the Euro, trading at €1.21. However, the overall outlook remains precarious as investors await further economic indicators, including the upcoming PMI data, which may reflect negative business sentiment post-budget. Additionally, UK inflation is expected to rise to 2.2% in October from 1.7% in September, prompting the Bank of England to consider further interest rate cuts if inflation data disappoints. [4c4373c4][ed20c78a]