ExchangeRates.org.uk - The Pound Sterling has secured limited net gains in currency markets on Monday amid a focus on global developments.Risk appetite has been supported by expectations of further cuts in Chinese interest rates.
There were reports that the Politburo has changed the 2025 outlook for monetary policy to appropriately loose from prudent previously.
This would be the first official change in language since 2010.
Hopes for policy stimulus underpinned commodities and UK equities which, in turn, helped underpin the Pound.
There were, however, still important global geo-political stresses and uncertainties.
ING commented; “Markets probably do not know immediately what to make of the regime change in Syria, but uncertainty in Korean politics and the underperformance of Korean asset markets is certainly noteworthy.
And again, by paying 4.6%, one-week USD deposits look relatively attractive into year-end.”
The Pound to Dollar (GBP/USD) exchange rate advanced to near 1.2780, although the dollar overall still held a firm tone.
Scotiabank (TSX:BNS) commented; “So far in December, the DXY is flat, resisting the usual negative seasonal trend in price.”
The Pound to Euro (GBP/EUR) exchange rate was unable to break above 1.2100 and settled with a small gain to 1.2070.
The ECB, Swiss National Bank and Bank of Canada are all expected to cut interest rates again this week.
ING noted; “Here the narrative is that while most of the G10 central banks (ex Japan) are looking to cut rates back to neutral, the Federal Reserve will be slower than most trading partners and interest differentials will continue to stay wide in favour of the dollar.”
Markets do expect a further Fed rate cut the following week with markets pricing in close to a 90% chance of a 25 basis-point cut.
The Fed will be in its blackout period this week, but there will be a growing focus on the 2025 outlook.
In an interview over the weekend, President-elect Trump indicated that he would not tell Fed Chair Powell to resign, although there was an element of ambiguity as he stated that Powell probably would resign if he asked him to do so.
Uncertainty could limit the scope for dollar buying.
An ECB rate cut would also tend to support GBP/EUR.
The Euro-Zone Sentix investor confidence index dipped to -17.5 for December from -12.8 previously and the weakest reading since November 2023.
Sentix noted further pessimism in Germany; “Following the announcement of new elections to the German Bundestag, there is no mood of optimism.”
Looking at the short term outlook, MUFG expects a measured stance; “In the press conference, President Lagarde is likely to be asked about downside risks to growth posed by the threat from US trade tariffs and unfavourable political developments in France.
However, it is likely premature to expect the ECB to take any policy action based on those risks at the current juncture.”
Latest COT data, released by the CFTC reported a small decline in long, non-commercial Pound positions to below 19,500 contracts from 21,600 the previous week, limiting the risk of position liquidation.
This content was originally published on ExchangeRates.org.uk