Following the market’s disappointment with the first budget of the new Labour government, the value of the pound declined last week in relation to its peers. Now, focus shifts to the Bank of England meeting on Thursday, where a 25 basis point interest rate drop is expected. Any indications of a possible December cut could affect the pound, even though this cut is mainly anticipated. Recent budgetary developments, however, have reduced those odds and given the euro some support.
Last week, the Euro gained ground versus a basket of currencies thanks to encouraging Eurozone economic statistics. Indeed, recent data revealed third-quarter GDP growth that was better than anticipated, which dampened hopes that the ECB would make large interest rate reduction in December. Inflation also increased to 2% in October, which significantly influenced rate-cut rumours. Investors are currently concentrating on forthcoming manufacturing data and ECB officials’ remarks regarding interest rate policy.
The U.S. Dollar weakened following Friday’s disappointing nonfarm payrolls data, indicating a gradual cooling in the U.S. labour market. Adding to this uncertainty, upcoming elections revealed a tight race between Donald Trump and Kamala Harris, with polls closing in before tomorrow’s vote. Moreover, market participants are also bracing for a potential 25-basis point rate cut by the Federal Reserve later this week.
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