Sterling appeared set for a second consecutive session of gains against both the Dollar and the Euro on Monday, as investors took a breather following two weeks of losses driven by worries over the UK’s economic and fiscal outlook.
Meanwhile, the Dollar slipped amid fears of a possible US government shutdown, with investors awaiting a series of economic reports that could provide additional insight into the Federal Reserve’s policy direction.
Analysts noted that a larger-than-expected rise in UK public borrowing this month, along with slowing activity in both the manufacturing and services sectors, weighed on market sentiment.
On Friday, Sterling gained 0.26% to $1.3434, recouping part of its 1.15% loss over the past two weeks. During the same period, the Dollar index, which measures the greenback against a basket of major currencies, declined by roughly 0.6%, Reuters reports.
Market attention is turning to the Labour Party conference, which begins in Liverpool today, as concerns over the UK’s economic growth and fragile public finances continue to weigh on the British currency, analysts say.
Any indication the government might yield to the party’s left wing, such as removing the two-child cap on benefits, could trigger negative reactions in both gilts and Sterling.
Yields on 30-year UK government bonds declined on Monday, following a three-week peak of 5.583% on Friday.
Earlier in September, they had climbed to 5.752%, marking the highest levels since the late 1990s.
Ahead of her speech at the Labour Party conference, Chancellor Rachel Reeves told the BBC that maintaining her fiscal rules would require making difficult decisions.
Markets are currently pricing in a 25 basis-point Bank of England rate cut by April 2026, with roughly a 25% probability of the same move occurring in December. Overall, the data imply about 39 basis points of easing by the end of next year.
Furthermore, the Euro fell 0.15% to 87.16 pence, marking its lowest level since 22nd September.
Traders anticipate that the European Central Bank will maintain higher rates for an extended period, with the deposit rate expected to hold around 1.95% by the end of 2026, unchanged from current levels, down slightly from the present 2%.