British Pound tests 12-week lows amid mixed UK PMIs and US Dollar strength

The British Pound (GBP) experienced a steep decline against the US Dollar (USD) on Wednesday, reaching its lowest price since July 2, trading around 1.3272. The strength of the Greenback was driven by expectations of further Federal Reserve (Fed) tightening measures and optimism surrounding a potential peace deal between Iran and the United States.

Simultaneously, mixed business activity figures from the UK failed to strengthen the Pound. Preliminary S&P Global Purchasing Managers Index (PMI) data for September showed a slight improvement in manufacturing activity to 52.0 from 51.7 in August, but services activity declined to 51.7 from 52.5 in August, exceeding market expectations of 52.0.

This resulted in the Composite Index falling to 51.7 in September, down from 52.5 in the previous month. The US Dollar maintained its strong position, buoyed by market expectations of additional Fed monetary tightening and investor optimism regarding the prospects of a peace deal with Iran. ING strategists emphasized that the Dollar's resilience against lower energy prices and a risk-friendly environment underscored the Fed's dominant narrative.

The US Special Envoy, Steve Wickoff, confirmed ongoing negotiations with Iranian officials, and President Donald Trump highlighted a productive meeting with Iranian officials, indicating a growing likelihood of an agreement. Investors were also closely monitoring the United Nations General Assembly, where US and Iranian representatives were engaging in talks.

The Manufacturing PMI, released monthly by S&P Global, serves as a leading indicator of the UK's manufacturing sector. Derived from surveys of senior executives at private-sector companies, the data reflects changes in current month compared to the previous month and can hint at shifts in official data series such as GDP, industrial production, employment, and inflation.

Levels between 0 and 100 indicate the percentage change, with 50.0 signifying no change over the previous month. A reading above 50 suggests expansion in the manufacturing economy, a positive sign for the Pound Sterling (GBP), while a reading below 50 indicates contraction, which is bearish for GBP. The Services PMI, also released monthly by S&P Global, gauges business activity in the UK's services sector, with a reading above 50 indicating expansion and below 50 indicating contraction.

The Bank of Japan (BoJ) had raised its short-term interest-rate target to 1.25% from 1.00% in a 7-2 vote, reflecting efforts to normalize monetary policy, aligning with expectations that had been anticipated for weeks.