The strengthening of the US dollar, the geopolitical conflict between Russia and Ukraine, and the release of UK PMI data were the three factors that brought down the pound sterling today. While the PM Johnson scandal is considered not to affect the exchange rate.
GBP/USD fell due to market anticipation ahead of the FOMC meeting, the Russia-Ukraine conflict, and the release of unsatisfactory UK PMI data. In the late Monday (24/January) trading session, GBP/USD was down 0.74% to $1,345.
The pound was eroded due to the strengthening of the US dollar which was supported by market expectations of the announcement of the Fed's interest rate hike at this week's meeting. However, based on CFTC data, speculators reduced their net short positions on the Pound in the week to January 18th, bringing the overall speculative position on Sterling to near neutral and the most bullish since October last year.
Meanwhile, the political rivalry between the Western and Eastern blocks also affected the performance of the financial market. Stocks weakened as investors prefer to seek safe havens. The US called on diplomats and their families in Ukraine to leave the country immediately. Shortly thereafter, the British also gave the same order to their embassy staff in Ukraine.
The US and its allies suspect Russia will soon invade Ukraine on a large scale. However, this statement was denied by the Ukrainian Foreign Minister. He said that the policy of repatriating the ambassador from Ukraine was too premature. Political security conditions in Ukraine are still stable and there will be no radical changes. However, this situation has increased geopolitical uncertainty, so that high-risk currencies such as the Pound tend to be abandoned by investors.
UK PMI Less Solid, PM Johnson Scandal Has No Effect
UK PMI data released this afternoon even added to the burden on Sterling. The UK Manufacturing PMI fell from 57.9 to 56.9 in January, lower than expectations of 57.7. A triad, the UK Services PMI fell from 53.6 to 53.3 in January, lower than expectations of 53.9.
The issue that is currently being discussed by the market is the turmoil in the UK's internal politics related to the PM Boris Johnson scandal. However, this is considered not to cause a weakening of the Pound. Monex analyst Simon Harvey said that the strengthening of the Dollar and the worsening of the UK PMI were more accurately cited as the strongest bearish catalysts for the Pound tonight.
MUFG analyst Lee Hardman also said, "We do not expect increased political uncertainty to materially impact the Pound's performance, given that there is unlikely to be a near-term change in government policy."
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