Sterling remained stable on Monday after dropping to a six-month low the previous week, following a surge in the Dollar triggered by Donald Trump's victory in the US presidential election.
The Pound was up 0.1% at $1.2627, compared to $1.2598 on Friday, its lowest point since mid-May.
Trump's win on 5th November has driven the Dollar index up by approximately 3%, as investors anticipate that trade tariffs and tax cuts will stimulate growth and inflation, leading to fewer interest rate cuts by the Federal Reserve.
These expectations have caused Treasury yields to rise significantly, making US bonds more attractive and boosting the Dollar.
Sterling has declined by approximately 2.7% since the election but has performed better than the Euro. Many traders believe the Euro will be more significantly impacted by higher US tariffs, which are expected to target China, the European Union, and Mexico, Reuters reports.
“Recent Sterling weakness has principally been a story of US Dollar strength,” said Matthew Amis, investment director at asset manager abrdn.
“From the GBP perspective, we see little reason for the recent slide to recorrect. The Bank of England may well be continuing to signal gradual cuts, but the UK growth story will need to be more compelling for markets to shift.”
Furthermore, data released on Friday revealed an unexpected contraction in the UK economy in September, with growth slowing to a mere 0.1% in Q3. This triggered a sixth consecutive day of losses for the Pound.
Traders estimate an approximately 80% likelihood that the Bank of England will lower interest rates again next month. They also predict rates could drop by about 65 basis points, bringing them to just above 4% by the end of next year, down from the current level of 4.75%.
The relatively modest pace of anticipated rate cuts has helped support the Pound this year, which has declined by 0.8% against the Dollar in 2024, compared to a 4.3% drop in the Euro.
Last week, the single currency fell to a two-and-a-half-year low against the Pound, reaching 82.62 pence, as investors speculated that Trump’s tariffs would have a greater negative impact on the eurozone than on Britain.
The euro was up 0.23% at 83.70 pence at the time of writing, following a rise on Friday after the release of weak UK economic data.