FX Focus: Pound hits lowest level in five weeks against the dollar

The pound hit its lowest level in five weeks against the dollar on Tuesday (20 September), as the rally triggered by positive economic data petered out amid profit-taking.

Having started the week on the front foot against its main rivals, sterling relinquished the gains and by mid-afternoon was down against both the euro and the dollar.

The pound was 0.53% lower against the greenback at $1.2959, having previously touched $1.2955, the lowest level against the US currency since 16 August. Sterling fared even worse against the euro, sliding 0.57% to €1.1591.

Kit Juckes, head of forex at Société Générale, attributed the decline to a combination of profit-taking following the previous session's rally and apprehension over the upcoming Federal Reserve meeting, which will conclude on Wednesday.

"The pound remains sensitive to short-term rate differentials, which means that pound/dollar will surely react one way or the other to what the Federal Open Market Committee does," he said. "My bearish bias is intact against both dollar and euro."

Elsewhere, the dollar was broadly flat against the euro but slid 0.09% against the yen, exchanging hands at ¥101.84. The Bank of Japan (BoJ) also concludes its two-day meeting on Wednesday, and its and the Fed's decision are expected to play a significant role in charting the course for the dollar and the yen in the short-term.

Craig Erlam, senior market analyst at Oanda, said: "As is often the case ahead of a major central bank event, traders can get a little nervous and sit on the fence.

"The fact that we have two on the same day is only exacerbating the problem. While there is scope for intraday volatility I don't expect to see many major swings ahead of the BoJ decision tomorrow."