Pound Sterling Rebounds After Dropping Below $1.30 Amid BoE Rate Speculation

Last week, the pound fell below $1.30 at interbank (IB), marking its lowest level in over two months against the US dollar. This decline was driven primarily by the strength of the USD and increased speculation of potential Bank of England (BoE) rate cuts following UK wage and inflation data. However, the release of Friday's UK retail sales report provided some relief, pushing the GBP/USD exchange rate back above $1.30. Additionally, the GBP/EUR pair surged to new 2-year highs, climbing above €1.20 at IB, a level it has exceeded for only 3% of the post-Brexit period.

EUR/USD Recovers Slightly After ECB Rate Cut and US Election Concerns

The EUR/USD pair rebounded from a brief dip to $1.0810 at IB, closing the trading session around $1.0860 at IB. Despite this recovery, the euro remained lower over the week, pressured by the strength of the US dollar amid heightened election-related concerns. The European Central Bank (ECB) further weighed on the euro by cutting its deposit rate by 25 basis points to 3.25%, a move widely anticipated by the markets. ECB President Christine Lagarde’s cautious outlook on the European economy, citing weaker-than-expected growth, fuelled speculation that additional rate cuts may be necessary in the future.

Pound Sterling Uptrend Against Euro Expected to Continue, But Volatility Looms

The pound sterling is poised to extend its upward trend against the euro over the next five days. However, traders should be cautious of potential volatility driven by upcoming Bank of England speeches and the release of Thursday's PMI data.  BoE Governor Andrew Bailey is scheduled to speak this Tuesday, along with several other members of the Monetary Policy Committee (MPC).There is a risk that Bailey might interpret recent data as justification for accelerating the pace of interest rate cuts by the Bank.

Trump's Presidential Prospect Boosts Dollar Amid Election Volatility Concerns

The possibility of Donald Trump winning the presidential election is bolstering the US dollar, as his policies on tariffs, taxes, and immigration are viewed as inflationary, potentially leading the Federal Reserve to keep interest rates elevated for a longer period. A Republican clean sweep is seen as the greatest volatility risk, with traders increasingly positioning themselves for the election over the next two weeks.