What is happening to the euro and sterling?

The euro (EUR) hit a 28-month low against the US dollar on Tuesday as investors took into account a further drop in euro zone negative interest rates.

The British pound fell below the $ 1.20 threshold, amid political uncertainty in Britain as the Brexit approached and the possibility of early elections.

Monetary markets raised their expectations for the European Central Bank to cut interest rates by 20 basis points (0.2%) at its meeting next week, to 83%, while the current interest rates (-0.4%).

The ECB has made almost a pledge to introduce a new quantitative easing package, as economic growth slows and Germany's manufacturing sector slips into recession.

Monday's survey showed Europe's manufacturing sector contracted for the seventh month in a row, boosting expectations for a European Central Bank easing policy.

In one trading session, the euro was down 0.3% at $ 1.0937. It fell in Asian trading to $ 1.09305, the lowest level since mid-May 2017 after breaking the important level of $ 1.10 last week.

In July, the International Monetary Fund (IMF) predicted that the growth of the 19-nation eurozone economy would slow to 1.3% this year from 1.9% last year.

Trade tensions between China and the United States are putting pressure on euro zone markets, which are a source of commodities for Chinese factories in particular.

Ramifications
Today, the pound is also at its lowest level in nearly three months, as lawmakers prepare to vote on the first phase of a plan that would prevent Prime Minister Boris Johnson from moving towards a European Union withdrawal without an agreement.

Sterling fell to $ 1.1959, the lowest level since October 2016, before paring some of its losses and settling at $ 1.1963.

Against the euro, sterling hit a two-week low of 91.74 pence.

"We have a choice between the increased risk of Brexit without an agreement and the possibility of a government led by (Labor leader Jeremy) Corbin," his tough-left program raises business concerns, Agence France-Presse analyst Craig Erlam said. "Or further ambiguity about the future."

"None of these options seems particularly favorable to the pound," the financial analyst added.

Rob Dobson, director of global research firm IHS Market, said rising economic and political uncertainties, as well as global trade tensions, had a negative impact on British factories' performance over the past month.

Britain's manufacturing PMI fell to 47.4 in August from 48 in the previous month.

Last month's reading was the lowest since July 2012, according to data from IHS Market on Monday.

The UK economy contracted by 0.2% in the second quarter for the first time since 2012, after a strong growth rate of 0.5% in the first quarter.

The economic downturn is often accompanied by a decline in aggregate demand due to lower consumption and investment, higher unemployment and lower asset values ​​(eg stocks and real estate).

The International Monetary Fund forecast that the British economy will grow by 1.3% in 2019 compared to 1.2% in previous estimates.

The UK economy grew by 1.4% last year and 1.8% in 2017.