GBP Loses Ground Against USD as China Cuts Rate

Sterling recovered from a one-month low against a basket of currencies on Tuesday, helped by robust gains against the euro, but it underperformed the dollar as investors grew unsure about the timing of an expected rate rise by the Bank of England.

Money markets have pushed out the timing of when the BOE will raise rates to around the third quarter of next year compared with early 2016 when the central bank published its quarterly inflation report three weeks ago.

Fears of a slowdown intensified in recent days after China devalued its currency and data pointed to further signs of weakness. These factors have deepened a sell-off in Chinese stocks and triggered volatility in global stock markets.

China’s central bank responded with rate cuts and relaxation in reserve requirements on Tuesday, but given the sharp swings across asset classes and a highly uncertain global outlook, investors are questioning whether the Fed and the BoE can tighten policy in coming months.

“The weakness in emerging markets is now spreading to developed market outlook, questioning the scope of potential base rate lift-off over the coming months in the U.S. and the UK,” analysts at RBC Capital wrote in a note.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza