The Pound Under Political Pressure, But Why Is the Dollar Also Worried About Interest Rates?
The GBP/USD currency pair weakened on Monday, kicking off December trading with a decline of around a quarter of a percent. The pound sterling (GBP) bounced off a key technical area that is typically a selling zone, potentially triggering further pressure if global capital flows continue to flow into the US dollar (USD). As long as market interest in the USD remains strong, the chances of significant GBP strengthening are likely limited.
Domestically, the pound is also weighed down by political issues. Chancellor of the Exchequer Rachel Reeves has been criticized for misrepresenting the UK budget. Reeves continues to push the narrative that tax increases are "inevitable," even though the Office for Budget Responsibility (OBR) has actually recorded an unexpected surplus, supported by higher-than-expected wage growth and tax revenues. At the same time, Prime Minister Keir Starmer's government is also faltering, with weakening political support both in parliament and within the Labour Party. This combination has made investors increasingly skeptical about the pound's prospects.
Meanwhile, global markets remain focused on the possibility of a Fed interest rate cut in December. US economic data remains limited following the lengthy government shutdown, leaving the Fed lacking a solid reference point for inflation and employment ahead of its December 10th interest rate decision. Interest rate markets are pricing in a high probability of a third consecutive rate cut, but at the same time, they also see a high probability that the Fed will only cut rates by a quarter point in January. This uncertainty means the US dollar and GBP/USD are likely to remain highly volatile in the near term. (az)
Source: Newsmaker.id
