Sterling inched up today, recovering some of the ground it lost late last week from surveys suggesting Britain was heading towards recession and boosting expectations the Bank of England will have to stimulate growth next month.
Sterling was up 0.2 percent at $1.3140, having fallen nearly 1 percent on Friday. The euro, also was 0.3 percent lower at 83.43 pence, having gained on Friday.
Traders said the bounce in sterling was likely to meet selling at higher levels with markets pricing in chances of at least two rate cuts in the next six months.
We believe that the softness in the UK economy is likely to be reflected by official post-referendum data as well over the coming weeks.
We expect a combination of weak economic data and expectations for aggressive easing by the BoE in August will keep the pound under pressure in the near-term.
Data on Friday showed “flash” purchasing managers’ indices plunging in the aftermath of the Brexit vote. The survey of services sector purchasing managers fell to 47.4 in July, its steepest drop since records began in 1996 and the lowest reading since March 2009. The manufacturing PMI also fell to 49.1 from 52.1 in June.
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