Sterling edged slightly lower against the Dollar, which remained strong on Thursday, as investors closely watched for President-elect Donald Trump’s choice for Treasury Secretary and its potential implications for policies on growth, trade, and taxes.
Amid the Dollar’s strength, Sterling weakened, slipping 0.1% to $1.26405.
However, it gained 1.2% against the Euro, which faced significant pressure from the Dollar. Traders are attempting to gauge the possible impact on eurozone growth of the Trump administration's anticipated tough stance on tariffs.
The Pound received a temporary boost the previous day from data revealing an unwelcome rise in UK consumer inflation in October. This reinforced market expectations that the Bank of England will likely be among the slowest major central banks to implement significant rate cuts in the coming year, Reuters reports.
Despite this, Sterling has dropped nearly 2% against the Dollar this month and has turned negative for the year.
Money markets indicate that traders expect the Bank of England (BoE) to reduce rates by approximately 68 basis points by next December. However, no rate changes are anticipated at the BoE’s upcoming meeting on 19th December.
Commerzbank strategist Michael Pfister stated that even for February, the probability of a rate cut is only slightly above 50%.
“We still believe that the next rate cut will take place then. The argument in favour of this is that monetary policy is still likely to be seen as quite restrictive and policymakers will certainly want to avoid falling behind the curve,” he said.
Pfister added that if inflation data demonstrates a sustained increase, discussions around a potential rate cut in February are “likely to intensify.”
Looking ahead, the macroeconomic focus shifts to preliminary business activity surveys for November, set to be released on Friday for the UK, eurozone, United States, and other regions.
In October, the most recent Purchasing Managers' Index (PMI) for Britain registered at 52, indicating growth as it surpassed the 50 threshold that separates expansion from contraction. This placed the UK second only to the United States, which recorded a PMI of 54 during the same period.
For Friday, economists surveyed by Reuters anticipate the UK PMI to come in slightly lower at 51.8.