The British Pound slipped on Wednesday, ending a week-long run of gains as a stronger US Dollar advanced alongside higher Treasury yields ahead of key US employment data. Investors were also awaiting remarks from newly appointed Federal Reserve Chair Kevin Warsh.
Sterling fell 0.23% to $1.3234 after posting gains over the previous four sessions, its longest winning streak in a month.
The currency finished a turbulent June down 0.2%, extending its loss for the first half of the year to 1.6%. That marks the Pound's weakest start to a year since 2022, when it dropped almost 10% between January and June.
Political uncertainty in the UK has also weighed on investor sentiment, with Labour Prime Minister Keir Starmer set to step down and Andy Burnham widely expected to succeed him, Reuters reports.
Markets are closely watching how Burnham plans to stimulate economic growth without placing additional pressure on the government's already constrained fiscal position.
At the same time, a stronger US Dollar, supported by the resilience of the US economy and equity markets, has continued to weigh on Sterling and other major currencies.
Despite its weakness against the Dollar, the Pound outperformed the Euro during the second quarter, climbing 1.4% to trade near its strongest level since last August.
Expectations for additional interest rate increases by the Bank of England have eased as tensions in the Gulf have subsided, allowing oil prices to retreat to their pre-conflict levels.
Money markets are now pricing in around a 90% probability of a BoE rate hike by year-end. Just weeks ago, traders had been factoring in the possibility of as many as three rate increases.
The Bank of England is scheduled to meet later this month to review monetary policy, with economists widely expecting policymakers to leave interest rates unchanged.
For Sterling and other major currencies, the key event this week will be the release of US monthly employment data on Thursday. The report could either reinforce or undermine growing market expectations that the Federal Reserve may begin raising interest rates as early as this month.
Central bankers from across the globe are gathering this week in Sintra, Portugal for the European Central Bank’s annual forum. Federal Reserve Chair Kevin Warsh is set to participate in a panel discussion and will later address the event on Wednesday.
Given his preference for brief remarks and a more restrained communication style from policymakers, investors are expected to closely analyse his comments for any clues about the future direction of US interest rates.
Bank of England Governor Andrew Bailey is also scheduled to speak on Wednesday.