The pound experienced a rise on Monday, continuing its rally from the previous week, as a decrease in U.S. bond yields put pressure on the dollar. Sterling reached its highest point in over a month, trading at $1.2409, after delivering its strongest weekly performance in a year with a 2.1% increase. The U.S. dollar index, which measures the greenback against other major currencies, dropped 1.4% last week following the decision by the Federal Reserve to maintain interest rates and a decline in economic data indicating a possible slowdown in the U.S. economy. On Monday, the index further decreased by 0.13%.
In comparison to the euro, the pound exhibited slight strength, with the single currency falling 0.1% to 86.62 pence. Francesco Pesole, FX strategist at ING, attributed the pound’s performance to the overall weakness of the dollar and questioned if this downtrend would continue. Pesole expressed uncertainty regarding the consistent softening of U.S. data, stating, “We think we might see a little bit of a rebound in the dollar in the next couple of weeks.”
However, sterling’s gains were reduced after a survey revealed that the UK construction sector experienced a second consecutive month of contraction in October due to elevated borrowing costs for house-builders. A survey-based gauge that encompasses services and manufacturing showed a slight improvement from September, although it remained in contraction territory.
Financial markets in recent months have been heavily influenced by the significant increase in U.S. bond yields, primarily driven by the strong American economy. Nevertheless, the Federal Reserve’s decision and the softer U.S. data have raised expectations among investors that the next move in interest rates will be a decrease, leading to a drop in global bond yields and a rally in stocks and non-dollar currencies.
The Bank of England also held interest rates steady at 5.25%, a 15-year high, last week while painting a bleak picture of the UK economy. Gross domestic product data, set to be released on Friday, is expected to reveal a 0.1% contraction in the UK economy during the third quarter, following a growth of 0.2% in the preceding three months.
More detail via Reuters here… ( Image via Reuters )