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Sterling Falters Against US Dollar As Data Drives Interest Rate Speculation

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Sterling Falters Against US Dollar As Data Drives Interest Rate Speculation

The British pound took a nosedive against the US dollar, as economic data fueled interest rate speculation.

Market sentiment favoured the US dollar in what was a highly active trade session following the New Year holiday. The greenback was bolstered after the Institute for Supply Management reported robust manufacturing output in the United States. ISM’s gauge of factory activity fell slightly to 57.0 in December, but remained elevated by growth in new orders, production and employment.

Meanwhile, PMI data courtesy of Markit Group showed the UK manufacturing economy cooled in December, prompting speculation the Bank of England could keep interest rates at record lows for a prolonged period.

The British pound experienced its biggest decline in 12 weeks against the greenback, falling below three technical supports to settle at 1.6445 US. This represents a loss of 121 pips. The greenback was broadly stronger Thursday, advancing more than 0.6 percent against a basket of its major competitors. The US dollar index closed the North American session at 80.56.

The Bank of England is expected to become the first of the major central banks to raise interest rates. The BOE is using the unemployment rate as a barometer for future rate hike discussions. According to BOE Governor Mark Carney, the central bank won’t even consider raising interest rates until the unemployment rate reaches 7 percent.

The Federal Reserve will initiate the first wave of bond cuts this month when it eases $75 billion into the financial markets, rather than the $85 billion pace the markets have grown accustomed to since September 2012. There is no timetable for when the Fed is expected to put an end to its record stimulus program. Since November 2008 the Fed has eased nearly $4 trillion into the financial markets, helping to reverse one of the worst recessions in US history.

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