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Forex - Sterling at 7-week highs but rate hike uncertainty caps gains

Published 08/25/2015, 05:56 AM
Updated 08/25/2015, 05:56 AM
© Reuters.  Sterling hits 7-week highs vs. dollar, rebounds against euro

© Reuters. Sterling hits 7-week highs vs. dollar, rebounds against euro

Investing.com - The pound rose to fresh seven-week highs against the dollar on Tuesday, but gains were held in check amid growing uncertainty over how soon the Bank of England will raise interest rates.

GBP/USD hit highs of 1.5813, the most since June 23 and was last at 1.5805, up 0.18% for the day.

Fears over a global economic downturn, led by a slowdown in China’s economy have intensified in recent days, accelerating a selloff across global markets.

Asian and European stocks rebounded on Tuesday, but shares in China and Japan continued to slump.

Shares in Shanghai fell around 8% overnight, one day after the worst trading session since 2007, dubbed ‘Black Monday’.

Recent steep declines in Chinese equity markets have sparked fears that they will weaken the world’s second largest economy and undermined investor confidence in the government’s ability to revitalize economic growth.

The turmoil in markets began when China unexpectedly devalued the yuan on August 11, sparking fears over the condition of the economy.

Heightened uncertainty over the global economic outlook has prompted investors to push back expectations on the timing of an initial rate hike by the Bank of England to the third quarter of 2016 from earlier in the year.

On Monday U.K. Chancellor George Osborne warned that Britain’s economy was exposed to a global downturn, but added that he was still “reasonably confident” there would not be “immediate sharp problems in Europe”.

Sterling regained ground against the euro, with EUR/GBP down 0.93% to 0.7298 after tumbling more than 2% to a two-month low of 0.7421 on Monday.

The dollar also rebounded, recovering from the eight-month lows set on Monday.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was last up 0.42% to 93.77.

The dollar fell sharply against the other major currencies in the previous two sessions as intense volatility in markets saw investors scale back expectations for a September rate hike by the Federal Reserve.

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