The pound fell on Wednesday as market data continued to indicate that the Bank of England would have to fall in line with other major central banks and cut interest rates this year to counteract a declining economic outlook. Data such as the composite purchasing managers index showed a fall in June and the services PMI stayed about level but came in slightly worse than expected. The pound fell as low as 0.2% against the dollar and euro and UK government bond yields also fell sharply. The probability of a 0.25% rate-cut this year has increased from 10% last month to around 33% this month.
Markets are also concerned about whether the UK can strike a new withdrawal agreement with the EU, bearing in mind a new Prime Minister would have to negotiate with Ursula von der Leyen, the German nominee for European Commission President. She has previously been very vocal about her dislike of the referendum campaign run by the Brexit-leaning politicians. This has made investors even more sceptical the UK can reach a new deal by the October 31st deadline.
GBPUSD opened at 1.2571 and reached a high of 1.2582 in the early afternoon but in the late afternoon hit a low of 1.2566 shortly before closing.
GBPEUR opened at 1.1147 and fell to a low of 1.1129 in the late morning, in the rest of the afternoon the pair was able to recover to close almost exactly where it opened at 1.1148
The dollar was steady on Wednesday due to mixed economic reports. Payrolls processor ADP showed that US companies added 102,000 jobs in the private sector, lower than the 140,000 that was predicted. Despite US-China trade talks being back on track, analysts believe that this data is still enough to convince the Federal Reserve to lower interest rates later this month, most likely a 0.25% cut.
The euro was also little changed, it jumped slightly on Tuesday when the European Central Bank said it was in no hurry to lower interest rates but slipped again after IMF Managing Director Christine Lagarde, who is seen to be dovish, was nominated as the next ECB president.
EURUSD opened at 1.1277 and despite making slight gains for most of the day, in the late afternoon the pair erased most of this progress to close at 1.1280