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Sterling lost ground soon after the release of UK GDP data with the pound falling from 1.6085 to 1.6040 soon after the release of data.

The quarter-on-quarter figure was unrevised at 0.7% but the yearly rate was revised down to 1.3% from 1.5% and consequently Sterling lost ground after the announcement.

Sterling also weakened due to UK business investment decreasing by GBP 786 million or 2.7 per cent quarter-on-quarter to GBP 28.7 billion in the second quarter.

Sterling has remained remarkably strong in recent weeks with the currency hovering above the psychological 1.60 USD level in recent days. The strength in the currency has baffled me but as is often the case, currencies can over shoot. Sterling has had a remarkable run from 1.48 against the US dollar in July to the current level above 1.60 helped by the decision by the Federal Reserve not to taper in September. The eight per cent plus appreciation over the last 3 months is unjustified on fundamental grounds and no doubt a correction will appear in due course.

Taking a medium to longer-term perspective no doubt Sterling will weaken. Today’s data was slightly lower than expected and consequently Sterling fell but still has a long way to correct.

US debt ceiling concerns, US tapering and geo-political risk and possible war in Syria should all be factors in giving the US dollar a boost in coming weeks.

Further reading:  Debt ceiling clash positive for USD