Will the pound weaken further in October?

The pound weakens as the economic outlook remains fragile

The pound has been weaker in recent weeks as a number of events come together to create conditions for investors to be skeptical.

Chiefly, the Bank of England paused its latest interest rate hike cycle two weeks ago. The now lower predicted UK interest rate for the future has made sterling less attractive for investors to hold.

The UK’s economic outlook has been much worse, with the latest Manufacturing data pointing to the worst figures in 14 years.

Looking more globally, the US dollar has been rising in value since it looks more and more likely that the US will have to raise its interest rate.

Why does the US Dollar affect the pound against other currencies?

This is really important because the US dollar is the world’s most heavily traded currency pair. Since it carries so much weight in the market, it can push and pull other currencies and affect seemingly unconnected pairs.

For example, the US dollar has increased 9% against the pound, moving from 1.31 down to 1.20 since July. This weakness the pound has experienced against the US dollar has ‘dragged’ the pound down against other currencies.

The end of this week sees the latest US Unemployment data which is likely to be pivotal in determining whether or not the US raises interest rates further.

Any turbulence we see on the US dollar could therefore affect GBPUSD rates, which may well influence the pound against other currencies.

What will move the pound this week and for the rest of this month?

The big news is likely to be whether or not it is likely the UK will definitely have to pause its interest rate hike cycle.

The economic data seems to be suggesting this is the case, and that in itself could prove GBP negative, as the dollar rises against the pound.

For this week, the US data Friday could be important, with the UK’s Inflation data and Unemployment data later this month likely to stimulate market interest.

Thank you for reading and please contact me to learn more regarding the latest market news and FX outlook for the pound.

Jonathan Watson

[email protected]

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