Pedro Goncalves of Yahoo Finance UK writes:
Sterling’s rise against the dollar appeared to be losing momentum as the pound fell again against the dollar in early trading on Monday.
At the time of writing, the pound was trading 0.1% lower against the dollar at $1.3107.
Traders increasingly expect the Bank of England’s pace of monetary easing to accelerate, making the pound, the best-performing G10 currency in 2024, less attractive.
This change in sentiment follows recent comments from Bank of England Governor Andrew Bailey, who suggested the bank may pursue a “more aggressive” and “proactive” approach to rate cuts. . These comments shocked the market, resulting in the pound’s biggest weekly decline since February 2023.
Nick Andrews, senior currency strategist at HSBC, said Mr Bailey’s comments were “deliberate” and “meaningful”, suggesting they could signal a pivotal moment for the currency.
Investors have favored the pound in recent months, buoyed by expectations that the Bank of England will cut interest rates more slowly than other central banks, keeping the pound’s relatively high yields. The pound rose to $1.3434, its highest level since February 2022, after the US Federal Reserve slashed interest rates last month.
However, current market indicators suggest a reversal may be underway. Options contracts revealed that traders were paying premiums to hedge against the pound’s decline as sentiment indicators such as risk reversals sank to two-month lows.
However, the pound managed to rebound against the euro (GBPEUR=X) in early trade, rising 0.1% to 1.1953 euros.