The British pound rose to a one-month high, surpassing $1.299, as it continues to benefit from the US dollar's bearish outlook, bolstered by its strong performance this year. Currently, GBP has gained approximately 2.0% against the US dollar year-to-date, making it the best-performing currency among the G10 nations. It now seems poised to challenge the year's peak of $1.3045, as widespread dollar weakness influences global foreign exchange markets.

Support for the pound is driven by interest rate differentials and an improving economic outlook in the UK. Market expectations indicate that the Bank of England is likely to adopt a more cautious approach to interest-rate cuts compared to the Federal Reserve. Although the BoE may start its easing cycle before the Fed, markets are pricing in over 90 basis points of easing from the Fed by the end of the year, compared to around 40 basis points from the BoE.

This week, attention shifts to the Federal Reserve's Jackson Hole Symposium, where both Fed Chair Jerome Powell and Bank of England Governor Andrew Bailey are scheduled to speak on Friday. In addition to this, investors are closely monitoring PMI releases and the GfK Consumer Confidence survey. While this week’s PMI data will be important, the near-term outlook largely depends on Powell’s remarks at the conference on Friday.

European Markets Start the Week Strong Amid Mixed Bond Performance

European stocks kicked off the week with gains, reversing month-to-date losses, while the bond market saw mixed performance and subdued price action. The EUR/USD pair hit a new 2024 high above $1.107 before losing momentum. With the Jackson Hole Symposium on the horizon, many investors are adopting a cautious, wait-and-see approach until later in the week.

Market expectations for European Central Bank (ECB) rate cuts remain stable, with 65 basis points of easing anticipated by year-end and 156 basis points by the end of 2025. The focus is now on whether the ECB might quicken its rate cuts if the Federal Reserve moves aggressively. However, this seems unlikely as the ECB is more concerned with the Euro-area’s economic and inflation outlook. Thursday’s wage growth data could challenge this view, as wage trends have been a key factor for the Governing Council in deciding future rate cuts. Recent data from Italy showed persistent wage pressures, and if this pattern is seen across the Eurozone, it could prompt the more hawkish members of the Council to argue against a September rate cut. That said, the ECB is likely to overlook temporary wage spikes, provided long-term wage pressures are expected to ease.

In the forex market, EUR/USD is expected to stay within the $1.05-$1.11 range, which has defined the pair’s movement over the past 18 months. The pair may continue trading above $1.10, with daily indicators suggesting ongoing momentum and one-week risk reversals turning the most bullish of 2024. Meanwhile, volatility in EUR/SEK has increased ahead of the Riksbank's policy decision, where a 25 basis point rate cut is anticipated. Renewed forward guidance for gradual easing into year-end could put further pressure on the Swedish krona.