Sterling experienced a slight increase against the dollar on Monday as investors took a moment to reassess after Friday’s selloff, which was influenced by fiscal concerns. The dollar experienced a slight decline as market participants anticipate upcoming speeches from Federal Reserve officials this week, which may offer additional insights into the U.S. interest rate trajectory.
Several factors have been identified as pressures on the British currency, such as weaknesses in the UK labour market, the possible requirement for additional fiscal consolidation in the Autumn budget, and wider global cyclical risks. Britain’s borrowing has exceeded the official forecasts that support the government’s tax and spending strategies, intensifying the significant challenge confronting finance minister Rachel Reeves in her upcoming November budget.
Sterling increased by 0.2% to $1.3496, following a dip to $1.3453, marking its lowest point since September 5. The dollar appreciated by 0.61% against the British currency last week. Experts contended that they no longer consider UK monetary policy changes as a primary influence on the pound in the near term, although a slower-than-anticipated rate reduction by the Bank of England might still provide some support against the euro. The single currency experienced a decline of 0.05% against the British currency, settling at 87.09 pence per euro, following a rise of 0.78% in the previous week. “While the euro is managing to shrug off a political and budget crisis in France and while the yen has not been too shaken by political uncertainties in Japan, the pound is more vulnerable to poor domestic news due to the UK’s current account deficit,” stated Jane Foley.
Market participants are keenly anticipating the release of the UK PMI data on Tuesday. “With inflation still to peak and budget uncertainty, there is scope for downside here, and the services PMI looks too strong for us,” stated Callum McLaren-Stewart. “The manufacturing PMI exhibits weakness across all dimensions and is not expected to show significant improvement in the near future.”