This Monday, the pound remains close to its multi-year highs against the dollar and the euro, supported by the relatively hawkish stance of the Bank of England (BoE). Unless there are major surprises during the week, the outlook for the pound will largely depend on movements in other currencies.
The pound is up 0.16% against the dollar, trading at $1.3395, just shy of a two-and-a-half-year high hit the previous week. Meanwhile, the euro rose 0.1% against the pound to 83.54 pence, although it failed to move far from last week’s low of 83.19 pence, its lowest level since April 2022.
Evolution of the pound sterling against the dollar in 2024. Source: Yahoo Finance
Expectations regarding the monetary policy of the Bank of England
The pound’s recent momentum has been supported by traders’ expectations that the BoE will be relatively cautious in cutting interest rates, compared to the Federal Reserve (Fed) and the European Central Bank (ECB).
The BoE kept rates unchanged in September, after a reduction in August. Markets are currently only expecting a further 25 basis point cut by the end of the year. In contrast, the ECB has already cut rates twice this cycle, and analysts expect another two 25 basis point cuts by December.
For their part, markets are pricing in roughly 70 basis points of additional cuts from the Fed in the remaining two meetings of the year, following the 50 basis point cut in September.
Factors driving the pound
According to ING currency strategist Francesco Pesole, the pound’s recent strength has been based on the narrative that “no news, everything is positive.” As the economic data calendars have been relatively calm, markets have turned their attention to other currencies, while keeping the BoE within the group of central banks with relatively hawkish stances.
Monday’s data, which showed UK GDP grew 0.5% in the April-June period, slightly below the 0.6% previously estimated, had no significant impact on the pound. However, there were positive signs related to household finances and business investment.
Outlook for the week
With little major economic data coming out of the UK this week, the pound’s major pairs will be buoyed by external factors. Eurozone inflation data, to be published on Tuesday, will influence the behavior of the euro/pound pair, while US labor market data, particularly Friday’s non-farm payrolls report, will be key to the pound against the dollar.
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