The pound fell against the single European currency and the US dollar on Thursday and it continued to fall as well on Friday. The reason for that was the data which showed that the British economy has already plunged into recession. In addition, the local strengthening of the greenback had also weighed on the pound.
The S&P Global/CIPS UK Purchasing Managers' Index (PMI) for December was revised lower. New orders declined for the second month in a row and the employment index fell to its lowest level since February 2021.
As of 10:27 London time, the British pound was down 0.11% to 88.49 against the euro. The pound was down 0.33% to 1.1867 against the dollar by that time.
There is too much pessimism about the UK as the British economy is almost certainly in recession. There is a wave of strikes across the country, and the crisis has hit almost every sector, including the rail network. Prices continue to rise, the welfare of citizens is falling substantially, migrants are arriving at record rates, the cost of living is rising steadily, and workers' wages have not risen for more than a decade, leaving many of them unable to make ends meet.
The British Rail, Maritime and Transport Union (RMT) announced that about 40,000 railroad employees are already taking part in strikes. They demand higher wages and cancellation of the management's decision to reduce staff. An estimated 62,000 trains could be canceled during the strike, which means that many British people will not be able to go home after the Christmas holidays.
On top of all this, the country has almost entered a period of deep political crisis, fertile ground for which was prepared by the short-sighted policies of Liz Truss. It is clear that after the failures of the previous prime minister, there is still discontent in society and a growing level of skepticism toward the new government. In his New Year's address, the new prime minister, Rishi Sunak, promised the annoyed British public that from now on the country's policy would have one goal: to meet the needs of the population.
But one way or another, representatives of the Bank of England are confident that in 2023 Britain will not be able to avoid a deep economic crisis. Moreover, it is expected that the recession will be even stronger than in other G7 countries.
The US dollar continued to rise, supported by the minutes of the last Federal Reserve Board meeting. The document confirmed suspicions that all members of the Fed's top management consider it advisable not to cut the base interest rate this year.
A report from the industry organization ADP, which was released on Thursday, showed a rapid growth rate in the number of jobs in the US private sector. Figures increased by 235,000 in December, although analysts on average forecasted an increase of 150,000.
On Friday, traders were waiting for official data on the US labor market for December. According to the Trading Economics survey, the US economy likely added 200,000 jobs in December 2022 and experts expect the unemployment rate to remain at 3.7%.
The ICE-calculated index that shows the dollar's values against six major currencies rose 0.36% in trading on Friday.
Fed members said they need much more evidence to be sure that inflation in America has entered a long-term downtrend. In the meantime, there's not enough evidence, so no rate cuts on the table. Taking all this into account, it would be wise to take short positions on GBP/USD.
