The Sterling to Dollar rate declined to a new three-month low following disappointing economic data stemming from China and the eurozone.

At 1.2528, the GBP/USD rate fell to its lowest since June as the underwhelming data from Europe and China contrasted with better-than-forecast US data, hiking the chances of the Federal Reserve holding interest rates at their current levels for longer. 

“The greenback is riding a seven-week winning streak, a rally partly driven by fading expectations for the US central bank to cut interest rates from 22-year highs above 5% anytime soon,” according to Joe Manimbo, Senior Currency Analyst at Convera.

Data published on Tuesday revealed China’s services sector expanded at the slowest pace so far this year, whilst services activity in the eurozone contracted more than forecast last month, Pound Sterling Live reports.

“Lower-than-expected China services growth – even though still in expansionary territory – has helped push the greenback to fresh six-month highs on flight-to-quality flows,” said Axel Rudolph, Senior Market Analyst at IG.

S&P Global downwardly revised its eurozone PMI reading to 46.7 from 48.6, as featured in its preliminary release. This fell short of expectations for a reading of 47, indicating the eurozone economy had fallen into contraction in August.

This fuelled a risk-off sentiment that supported the Dollar.

“Broad gains propelled the US Dollar index to three-month highs,” Manimbo added. “The Euro and Sterling both slipped to 12-week lows against their US counterpart.

“Sterling tumbled more than 0.5% to below 1.26 as risk sentiment weakened and spurred a flight to safety in the greenback,” he added.

Meanwhile, China’s Caixin services PMI survey stood at 51.6 last month, less than the forecast 53.6 reading.

“It seems to be a string of bad news on the PMI front around the world that has led to the continued break higher in the USD vs. just about all currencies,” said Brad Bechtel, Head of FX Strategy at Jefferies.