Pound heads for worst month since 2022 budget crisis

Pound heads for worst month since 2022 budget crisis

Impact of Economic Factors on the Pound

By Amanda Cooper

Comparison with U.S. Economic Data

LONDON (Reuters) -The pound headed towards its largest monthly loss against the dollar since September 2022 on Thursday, reflecting growing confidence among investors in the outlook for the U.S. economy and increasing pessimism over the British one.

Market Reactions and Predictions

Sterling was down 0.15% on the day at $1.322 and weakened against the euro, which rose 0.4% to 86.46 pence.

Speculators' Positioning on the Pound

In July, the pound has fallen by 3.7%, the most since losing 3.9% and hitting a record low in September 2022, during then-Prime Minister Liz Truss's budget-induced market crisis.

The pound is still up nearly 6% against the dollar this year, but that's softened dramatically from a year-to-date gain of almost 10% at the start of the month.

Following Wednesday's two-day policy meeting, the Federal Reserve left U.S. interest rates unchanged, as expected, and Chair Jerome Powell gave no indication of when they might fall again.

In the meantime, U.S. data has painted a far rosier picture of the world's largest economy than UK data has of the British economy. U.S. data releases this week including second-quarter economic activity and some measures of employment have added to that.

The Citi U.S. economic surprise index has overtaken its UK counterpart this week for the first time since April.

With the Bank of England expected to almost certainly deliver two more rate cuts this year, according to money markets, and a far lower chance of two more cuts from the Fed, investors are ditching the pound.

Weekly data from the U.S. Commodity Futures Trading Commission shows speculators are neutral on the pound, having whittled back the bullish positioning that had prevailed continuously since February.

"Although not in receipt of any tier-one data releases this week, sterling has still had a bumpy ride," analysts at Monex said in a note.

"Slowing U.S. growth and UK fiscal concerns both point to sterling underperformance moving forward. As such, we see little room for sterling to rally sustainably from current levels sub-$1.33," they said.

(Reporting by Amanda CooperEditing by Frances Kerry)