The pound maintained its upward trend from the previous week by reaching $1.3306 against the dollar while the dollar weakened after U.S. jobs data showed disappointing results. The currency strengthened 0.3% to 87 pence per euro after reaching its lowest point since May 2023.
Sterling experienced its largest monthly decline of 3.8% in July since September 2022 because investors became concerned about UK fiscal health and economic slowdown. Bank of America’s Kamal Sharma predicts that sterling will rise against the euro at the end of the year because he expects eurozone data to slow down and the European Central Bank to make additional rate cuts. The labour market indicators in the UK will lead to sterling’s decline to 89 pence per euro according to Danske Bank’s Mohamad Al-Saraf who predicts this will happen within the next year.
Market participants expect the Bank of England to make a quarter-point rate cut and 50 basis points of easing by year-end with a 90% probability of this occurrence. The direction of sterling depends on the Bank of England’s forward guidance about quantitative tightening and gilt sales. According to ING’s Chris Turner the currency would benefit from a slower reduction in bond holdings particularly longer-dated gilts.
