The British economy is most likely heading into recession. This is also why the British pound has fallen significantly against the dollar, but also against the euro. The dollar was also helped by better-than-expected data from the US labour market.
The British economy is in recession
“I think there is a lot of pessimism in the market about the future development in the UK. The bad mood has carried over from last year to this year. We are dealing with an economy that is almost certainly going through a recession, which will be reflected in a fall in productivity and a slowdown in investment,” Jane Foley, head of forex strategy at Rabobank in London, told Reuters.
The pound lost ground against both the US dollar and the euro during Thursday’s trading. It lost 0.33 percent against the dollar and 0.44 percent against the euro. According to Foley, it is now difficult for investors to trust the British pound more. “It’s easier to sell than to buy,” Foley went on to say.
Positive data from the US contributed to the weakening of the pound
Against the dollar, the pound also lost ground due to better-than-expected US labour market data. The number of new claims for unemployment benefits in the US in the last week of last year was only 204,000. The markets were expecting a figure of around 20 000 persons higher.