The British pound dropped to a 10-week low on Friday as investors rein in expectations of where they think the Bank of England’s interest rate might peak after recent soft activity data.
S&P Global’s flash purchasing managers’ index (PMI) for August, released on Wednesday, showed business activity contracted, indicating the UK economy was on course to shrink in the third quarter and prompting markets to scale back tightening bets.
Weaker than-forecast retail sales last week and dismal PMI this week have raised concerns over the health of the UK economy and recession fears.
The dollar was broadly stronger, also rising against the yen and euro, before Federal Reserve Chair Jerome Powell and European Central Bank President Christine Lagarde take the stage at the Jackson Hole Symposium later on today.
BoE Governor Andrew Bailey is skipping the event, with Deputy Governor Ben Broadbent representing the central bank at the meet-up.
The recent volatility in the BoE peak rate expectations on the back of data releases means the return of some BoE comments after a long period of silence can definitely move the market.
Markets are still pricing in with near certainty that the BoE will raise its key interest rate for a 15th straight meeting in September to 5.5%, but with only around 60 basis points worth of tightening still priced, markets think a peak at 6% is now a long shot.
Meanwhile, data showed British consumers’ mood perked up in August as lower inflation made individuals less downbeat about the outlook for their personal finances, but overall sentiment remained fragile.