Pound Sterling remains under pressure as the Fed’s chances for an early rate cut fade.
In the European session on Monday, the Pound Sterling (GBP) continued to suffer from negative market sentiment. The GBPUSD pair falls substantially as robust US Nonfarm Payrolls (NFP) data on Friday dampens prospects of a rate decrease from the Federal Reserve (Fed) at its March monetary policy meeting. The strong US job creation figures coincided with unusually strong wage growth, indicating that inflationary pressures remain.
The UK’s weak economic outlook may push the Bank of England to ease monetary policy.
Meanwhile, The situation for policymakers at the Bank of England (BoE) is becoming increasingly difficult as fears of a technical recession in the UK economy grow. The UK Office for National Statistics (ONS) announced a 0.1% contraction in GDP in its revised third-quarter figures. The UK economy is anticipated to remain on the back foot as increased interest rates have exacerbated the cost-of-living crisis, causing businesses to operate at reduced capacity.
Daily Market movers: Pound Sterling falls dramatically, as US Dollar Index hits seven-week highs.
The Pound Sterling falls to a near seven-week low of approximately 1.2600 as the appeal of risk-perceived assets fades.
The outlook for risk-sensitive assets has worsened as the optimistic United States employment statistics drove traders to reduce Federal Rate-cutting bets made by the Reserve.
The January US labor market data showed a strong demand for workers. And firms offering higher compensation growth to retain staff, indicating that businesses have a large order book.
Moreover According to the CME Group Fedwatch tool. A rate drop at March’s monetary policy meeting seems improbable. Traders expect a 25 basis point (bps) rate drop to 5.00%-5.25% at the May policy meeting, which is little higher than 57%.
Despite the fact that the Bank of England appears to be more hawkish on interest rate forecasts than the Fed. The pound sterling has weakened significantly.
Investors think that weak economic performance. And rising geopolitical tensions would drive BoE policymakers to decrease interest rates sooner than expected.
Furthermore The UK economy is on the verge. of a technological recession. The economy saw a 0.1% GDP decrease in the third quarter of 2023. With a low performance expected in the fourth quarter.
The absence of economic recovery in the UK would have a substantial impact on the labor market.
In last week’s monetary policy meeting, BoE policymaker Swati Dhingra voted in favor of a 25 basis point rate drop. From the Monetary Policy Committee (MPC), which is led by nine members. In contrast, policymakers Catherine Mann and Jonathan Haskel advocated for a similar rate hike.
Moreover The UK’s bleak economic prospects may push BoE members. To follow Swati Dhingra’s lead and cut interest rates in subsequent sessions.
Investors expect fresh guidance from the S&P Global Services PMI.
Moving forward, investors will focus on the final S&P Global Composite and Services PMI for January. Which will be issued at 09:30 GMT. Investors expect the Composite and Services PMI to remain unchanged from their preliminary readings of 52.5 and 53.8, respectively.
