During the early hours of Monday’s European trading session, GBP/USD saw a decline, reaching approximately 1.3060. This downward movement can be attributed to safe-haven flows stemming from escalating geopolitical tensions, which have strengthened the US Dollar and caused pressures on the British Pound.
On Friday, the US Bureau of Labor Statistics released important data indicating that the annual Producer Price Index (PPI) increased by 1.8% year-over-year in September, slightly less than the 1.9% rise recorded in August but exceeding market expectations of 1.6%. Additionally, the core PPI rose by 2.8% year-over-year during the same month, surpassing forecasts of 2.7%. In terms of monthly performance, the overall PPI remained unchanged in September, while the core PPI registered a 0.2% increase.
The Federal Reserve has recently pivoted its focus from strictly addressing inflation to ensuring stability in the job market, which is a crucial aspect of its dual mandate. A strong jobs report for September has diminished the likelihood of a 50 basis points interest rate cut in November. This situation positions the Dollar favorably against the Pound Sterling.
Conversely, the outlook for the Pound has been impacted by recent comments from the Bank of England’s Governor, suggesting a potential shift toward more aggressive rate cuts. Market sentiment now reflects a 90% probability of a rate cut during the BoE’s upcoming meeting in November. As anticipation builds for the BoE’s Monetary Policy Committee meeting on November 7, attention turns to the UK employment data set to be released on Tuesday. This data could provide valuable insights regarding the current state of the labor market and influence expectations for future UK interest rate decisions.
