Pound dives to lowest level against dollar since June 2017 amid Brexit woes, trade-war fears and ONS economic growth figures
- Sterling down to around $ 1.27 earlier this morning, with euro at €1.11
- GDP growth rose by 0.4% in second quarter, but has slowed in the last month
- FTSE 100 usually rises when pound dips against dollar – but it has fallen today
The pound remains under pressure with the threat of a no-deal Brexit on the horizon and tentative economic growth.
Latest figures published by the Office for National Statistics reveal that Britain’s gross domestic product rose 0.4 per cent in the last quarter, up from 0.2 per cent between January to March.
While the rate of economic growth increased and was in line with expectations, the pace of growth slowed from 0.3 per cent to 0.1 per cent between May and June.
Against the US dollar, sterling is down 0.39 per cent today to around $ 1.27, which is the lowest it has been since June 2017.
Tough times: The pound has had a tough week amid fears of a no-deal Brexit and mixed economic results
Earlier this week, the pound fell to a nine-month low against the euro and is currently flat at around €1.11.
The pound’s weakness means British holidaymakers will not see their money stretch as far in Europe and across the US.
Jacob Deppe, head of trading at Infinox, said: ‘Growth in the second quarter may be stronger than the first, but in June the economy all but fizzled out.
‘This doesn’t bode well for the third quarter, all the more so following last week’s interest rate rise.
‘Mark Carney and the Monetary Policy Committee will be a little red-faced given the weakness of the June data.
‘The Bank of England has raised rates just as the economy, it would appear, is starting to lose momentum.
‘With the Pound taking a beating as the odds of a no-deal Brexit shorten, and the economy lacklustre in June, the decision to raise rates is looking increasingly ill-advised.’
Mr Deppe added: ‘It’s safe to say that another rate rise is now off the cards until 2019. The pound’s response to the data said it all.’
Poor performance: The pound is hovering at around $ 1.27 against the US dollar
Looking at the pound’s future prospects, David Madden, an analyst at CMC Markets, told This is Money: ‘Sterling is likely to remain low versus the US dollar, as the US economy is performing well.
‘The financial crisis in Turkey has hit the euro, so sterling might not fall as much against the euro.
‘We have seen a slightly firmer pound in the wake of the GDP numbers. It seems like the respectable growth figures encouraged buyers to enter the fold.’
Viraj Patel, an FX startegist at ING, told This is Money: ‘We expect the pound to remain under pressure over the coming months – especially ahead of crucial Brexit events in September and October (Brexit talks with the EU, Brexit summits and party conferences).
‘We expect GBP/USD to fall to 1.27 and GBP/EUR to move to 1.08-1.09 until we get clarity on the Brexit negotiations.
‘Things could get worse for the pound if it becomes a central scenario that the UK and EU are unable to agree a Withdrawal Deal (we’ve got GBP/USD at 1.20 and GBP/EUR at 1.05 here).’
When the pound falls, the FTSE 100 index typically enjoys a boost, but this is not the case so far today.
Connor Campbell, an analyst at SpreadEx, said: ‘Sterling’s struggles have often this month allowed the FTSE to post gains in the face of losses elsewhere.
‘Not so today, with the UK index diving back under 7700 after falling 0.6 per cent, a drop only a bit better than the 0.8 per cent slides seen by both the DAX and CAC.’
Prospects: Analyst David Madden said the pound is likely to remain low against the dollar
Sectors: Output in Britain’s construction sector rose by 0.9 per cent, the ONS data shows
In its latest set of figures for the economy, the ONS said growth in the country’s production sector fell by 0.8 per cent due to a slump in manufacturing, particularly in machinery, metal products and transport equipment.
The service sector, which accounts for over three-quarters of the UK’s economic output, grew by 0.3 per cent in the three months to June.
Output in the construction sector rose by 0.9 per cent.
The ONS said: ‘Abstracting from these quarterly movements, the underlying trend in real GDP is one of slowing growth.
‘The UK economy grew by 0.6 per cent in the first half of 2018, compared with the second half of 2017 – continuing the declining trend seen since the second half of 2014.’
ONS figures: GDP growth in the UK has slowed, according to this chart
Christian Jaccarini, a senior economist at the Centre for Economics and Business Research, said: ‘Today’s data show that the economy rebounded after a weather-hampered first quarter.
‘Still, the UK’s economic outlook remains mixed at best. Brexit-related uncertainty is set to continue to weigh on investment growth, whilst renewed pound weakness supports inflation.’
Warnings this month from Bank of England Governor Mark Carney and trade minister Liam Fox, that the prospect of a no-deal Brexit was growing, also set off the pound’s recent slide.