Sterling Falters Amid Economic Concerns and Tax Hike Risks

Sterling was poised to break a three-day winning streak against the dollar on Thursday, influenced by uncertainties surrounding the UK economy and looming tax hikes.

While progress in U.S. trade talks reduced investor fears of a global trade war, boosting risk assets and the pound earlier this week, concerning UK PMI data revealed weak business activity for July with employers slashing jobs at the fastest pace in five months, according to a survey. Such figures have fueled speculation about a possible Bank of England interest rate cut next month, with markets now pricing in an 80% chance of a rate cut in August and two easing measures by the end of the year.

The pound declined by 0.28% to $1.3544 after hitting a two-week high at $1.3588 early in the session. The dollar strengthened against the euro and yen following progress in trade discussions. Sterling weakened against the euro, which dropped 0.16% to 86.81 pence after it hit its highest level since April 11. The rate difference between the UK and the euro area has influenced the currency cross, with markets anticipating a European Central Bank terminal rate reduction and a significant rate cut by the Bank of England by next year-end. Concerns over public finances and potential tax hikes weigh heavily on the pound, noted Matthew Ryan from global financial services firm Ebury, as June's government borrowing data underscored fiscal strains with a higher-than-expected borrowing figure of £20.68 billion.