British pound hits low level against the dollar as global stock sentiment declines

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LONDON, Aug 17 - The British pound hits its low level against the USD on Tuesday as weakening risk sentiment hit the global stock markets, hitting risk-correlated currencies including commodity-linked Australian, Canadian and Kiwi dollars.

Global stock markets were in the red for a second day running as an unexpectedly weak set of economic data together with tension in Afghanistan and other factors on appetite for riskier assets weighed on.

The pound touched its weakest level since July 27 at 0707 GMT, falling 0.3% on the day to $1.3787. Against the euro it was 0.3% lower at an 85.35 pence low of two weeks on par with the euro.

The market often overlooked positive employment data. As Britain's economy extended its recovery, payrolls rose to 28.9 million in July and data pointed - 201,000 shy of the level seen before COVID - 19 pandemic hit in March 2020.

The Office for National Statistics also said the headline unemployment rate fell to 4.7% in the three months to June, its lowest since the three months to August 2020.

Economists polled by Reuters had mostly expected unemployment rate to increase to 4.8%.

The pound continues to struggle despite the overall better than expected Labour Market Data out of the UK: the unemployment rate came in a tad lower and the weekly earnings were stronger than expected, while employment gains continued at a healthy clip in June, said Valentin Marinov, Head of G 10 FX research at Credit Agricole.

The slightly less good news was the fact that the claimant count decreased in July with the drop in total jobless claims that we experienced in June stagnating in July. The data has provided relatively little support to the pound likely because the labour market conditions in the UK are expected to quickly start deteriorating after the expiry of the government's furlough scheme next month.

On Wednesday, investors will look at the UK inflation figures with the market consensus expecting inflation to ease.

That will decrease pressure on the Bank of England to normalize monetary policy any time soon, said Marinov.

All this, coupled with the high pound sensitivity to risk sentiment, makes us keep our cautious outlook on the pound in the near term. Indeed, FX investors could continue to look for hedges against the continuation of escalation in risk aversion and may find the pound an attractive short, given current valuation and market positioning.

Sterling is trading in line with risk sentiment in recent weeks and has been among the top performing currencies in the G 10 Group.

Speculators' positioning on the pound turned net to the pound in the week following Aug. 10, according to weekly CFTC positioning data. This means that the speculative market usually expects the pound to strengthen.