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British Pound Drops To Six Week Low As Dollar Surges

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British Pound Drops To Six Week Low As Dollar Surges

The British pound touched a six-week low of $1.2259 in the currency markets on Thursday due to expectations of a March U.S. interest rate hike and mixed data declared by UK's economy.
In the U.S, several Federal Reserve officials have voiced their bet in the past few days, on an imminent interest rate hike in the coming days. Federal Reserve Governor Jerome Powell has said that economic conditions in the U.S. have done fairly well and is reaching the target set by the Central Bank. The inflation rate is improving and has reached closest to Fed's target of 2% for the first time since 2012. One of the other main reasons for a possible rate hike is the downfall in the U.S. unemployment rate. In spite of seemingly moderate economic growth in the first quarter, the number of U.S. citizens filing for unemployment fell to a 44 year low last week.
Jerome Powell was the latest Fed. official to hint to a possible U.S. interest rate hike this month. Yields on the U.S. debt rose above 1.3% on Wednesday for the first time in seven years. The greenback rallied due to the hawkish comments of the Fed officials.
The other major contributor to the fall in GBP is mixed indicators from Britain's economy. A survey declared that Britain's industries grew slightly in February, but, new orders have slowed down. The data suggested that the economy will slow down as people will become more cautious towards spending by borrowing. However, the Markit/CIPS Construction Purchasing Manager's Index (PMI) increased to 52.5 from 52.2 in January, faring better than forecasts. Year-on-Year growth in unsecured consumer borrowing slid down for the first time since mid-2012. However, export order growth picked up after a fall in January. This has added to the uncertain economic outlook contributing to GBP fall.
The tumultuous political happenings surrounding the BREXIT have only added to pound's woes. U.K. Prime Minister had made her stance clear about not holding a second referendum on Scottish independence in last week, after, it was reported that the Scottish government is preparing to call another vote.
It is to be noted that even though sterling slipped, it performed more robustly against the strong US dollar compared with other major currencies including the Japanese Yen and the Australian and the New Zealand dollar.
Economists and Analysts have warned that sterling may continue to dip further as Britain prepares for official exit from the European Union this month. Theresa May has voiced her intention to file Article 50 later this month, thus, officially initiating Britain's exit. Traders have said, developments around Britain's departure will remain the dominant factor in determining the currency movements. If Theresa May is able to trigger BREXIT this month, this might push sterling even lower, owing to her stance in favor of "HARD BREXIT". However, if she is not able to pass trigger official divorce this month, owing to the fact that the legislation needs to be passed unamended, the sterling may rally upwards. The markets are anxiously waiting to see how the developments shape up in the coming days to have a more clear picture of the sterling currency movements.

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