Sterling recovers on revived risk sentiment

The Pound Sterling has experienced a sell-off due to the Middle East conflict, affecting the market mood. UK manufacturing and construction activities are currently in a vulnerable phase due to higher mortgage rates.

The Fed is expected to keep one more interest rate hike in consideration, while the Bank of England may keep interest rates unchanged to phase out fears of a recession in the UK’s economy.

The UK economic prospects are losing resilience as the demand outlook deteriorates, with corporates reluctance to raise funds at higher borrowing costs, reducing labor demand and overall output. The BoE has vowed to keep interest rates restrictive until inflation comes down to 2%.

The GBP/USD pair has recovered for three trading sessions in a row, with BoE Governor Andrew Bailey predicting inflation could come down to 5% or below by year-end. Higher interest rates have significantly dampened the UK’s Manufacturing and Construction PMI in September, with the UK Construction PMI at 45.0. the pair is currently trading around 1.2198, down by only -0.31.

The US Dollar Index (DXY) has recovered, supported by cautious market sentiment and rising expectations of one more interest rate hike by the Fed.