GBP/USD Tests 12-Week Low Amid Mixed UK PMI and Stronger Dollar

Sterling extended its decline against the dollar on Wednesday, trading near 1.32887 after earlier touching a 12-week low not seen since July 2. Broad dollar strength remained the dominant driver of the exchange rate, while the latest UK economic data failed to shift the market's cautious view on the pound.

**Dollar Strength Dominates Market Sentiment**

Dollar buying was supported by two key factors. On one hand, expectations that the Federal Reserve is set to begin tapering asset purchases and potentially raise interest rates earlier continued to build, providing a solid fundamental base for the greenback. On the other hand, optimistic signals from the geopolitical front also boosted risk appetite, with reports that efforts are underway to restart peace talks with Iran. This development dampened safe-haven demand but, paradoxically, further solidified the dollar's position, exerting indirect pressure on sterling.

**UK Data Fails to Rescue Pound's Slump**

The UK's purchasing managers' index (PMI) data released the same day showed mixed results, failing to inject rebound momentum into the pound. The figures revealed a mixed picture for business activity, with some areas showing signs of weakness, contrasting sharply with the brief rebound the previous day driven by expectations of a smooth political transition. A lack of standout economic data, combined with dollar strength, caused sterling to quickly give back its short-lived gains and accelerate its slide toward multi-month lows. Market reports indicated that investors remain doubtful about the pace of the UK's economic recovery, and in the near term, the pound lacks a catalyst for independent strength.