The British pound was the only currency to fall against the US dollar today, leading many traders to wonder why there is such severe underperformance.
The simple answer would be deteriorating UK fundamentals, but a closer look at the different relationships in the financial markets reveal otherwise. The biggest loser in the currency market today is GBP/JPY which has fallen over 600 pips. USD/JPY is also down 2 percent, which is the largest drop in the currency pair on a percentage basis since the subprime debacle hit its peak on August 16th. It is clear that GBP/JPY selling is a major reason why the British pound is unable to rally against the US dollar like the Euro, Australian and New Zealand dollars have. The relationship between the British pound and oil prices is also breaking down and when this happens, there tends to be sharp movements in the GBP/USD. UK manufacturing PMI was released today and to the surprise of no one, the sector accelerated at a slower pace. Construction sector PMI is due for release tomorrow and that is also expected to be weak.
