Pound Weakens, Market Confident of BoE Interest Rate Cut in December
The GBP/USD pair weakened to the 1.3155 area at the start of Monday's Asian session. The pound sterling was under pressure against the US dollar amid concerns about the state of the UK economy and the mounting fiscal burden. Market participants were also awaiting a speech by Bank of England (BoE) external member Catherine Mann, which could provide additional signals regarding the future direction of interest rate policy.
Pressure on the pound increased following reports that Prime Minister Keir Starmer and Chancellor of the Exchequer Rachel Reeves abandoned plans to raise income tax rates ahead of the November 26 budget announcement. At the same time, UK data showed cooling wage growth and weakening GDP, adding to concerns about an economic slowdown. This combination of factors has led to increased market confidence in the BoE's 0.25% interest rate cut in December, with the probability now approaching 80%, according to Reuters calculations.
In the US, traders are bracing for a slew of economic data delayed by the government shutdown. Many analysts expect the data to confirm a weakening labor market and a potential slowdown in the US economy, which could put pressure on the US dollar over time and provide support for GBP/USD if the data is worse than expected.
However, for now, the market still views the chances of a Fed rate cut in December as uncertain. The probability of a 25-bps cut by the Fed has fallen to around 54% from 62.9% previously, according to CME FedWatch. This means both the Bank of England and the Fed are under scrutiny, and the difference in the pace of rate cuts between the two central banks will be a key factor driving GBP/USD in the coming weeks. (asd)
Source: Bloomberg.com
