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British Pound Plummets as UK Manufacturing Sector Contracts, Services Growth Stagnates
Wednesday, 01 October 2008 23:45:55 GMT  |  Terri Belkas, Currency Strategist
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The British pound plummeted against the US dollar as we continue to see numerous signs of a recession in the UK.

Indeed, manufacturing PMI contracted at the fastest pace in 16 years, as the index fell to 41 in September from 45.3. Meanwhile, an index of growth in the services sector stagnated for the first time since 2002. This helps to explain why Credit Suisse overnight index swaps are still pricing in over 125bps worth of rate cuts by the Bank of England (BOE) during the next 12 months. While the BOE is not anticipated to reduce rates at their next meeting on October 9, the sentiment alone is weighing heavily on GBP/USD. This sentiment may only be exacerbated on Thursday morning when the Bank of England Credit Conditions Survey for Q3 will be released. We already know that conditions must be pretty bad given the fact that two banks had to be nationalized this year, including Northern Rock in February and Bradford & Bingley just this past week. Thus, the BOE’s report will likely only highlight the extent of credit problems not only in the UK, but throughout the global financial markets. My fundamental bias for the British pound on Thursday: bearish.


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