The Pound fell against both the Euro and Dollar on Monday as geopolitical risks and the monetary policy direction of central banks remained in the spotlight.
Last week, Sterling experienced its largest daily decline since April following comments from Bank of England Governor Andrew Bailey, who indicated that the central bank might take more aggressive measures to reduce borrowing costs.
Analysts noted that Bailey's comments led to a significant unwinding of heavily leveraged long positions in the Pound, making the British currency more susceptible to shifts in market sentiment due to speculative positioning, Reuters reports.
Meanwhile, the Dollar dipped on Monday after a rally fuelled by strong US jobs data and escalating tensions in the Middle East.
Sterling fell 0.2% to $1.3090, having reached $1.3066 on Friday, its lowest level since 12th September.
Furthermore, the UK jobs market displayed further signs of cooling in September, according to a survey that may provide reassurance to the Bank of England as it deliberates another potential cut to borrowing costs.
Although this week’s data calendar in the UK is relatively light, important releases, such as jobs data and the consumer price index report, are scheduled for next week, which could have a significant impact on the market.
The Euro has reduced its post-Bailey gains from Friday, with the latest increase at 0.28%, trading at 83.81 pence per Euro.
“Sterling may experience volatility against the US Dollar given the uncertainty about the timing of rate cuts, but this is likely to be a short-term phenomenon,” according to Dean Turner, chief eurozone and UK Economist at UBS Global Wealth Management.
“Dollar weakness is likely to reassert itself in time as the US currency loses its yield advantage amid falling US interest rates,” he added.
In the near term, Sterling's outlook remains uncertain due to geopolitical headwinds that are likely to impact price movements, putting pressure on the currency, which is considered riskier compared to the safe-haven Dollar.
Investors had anticipated that the Bank of England would reduce rates more gradually than the US Federal Reserve and the European Central Bank; however, this perspective was called into question late last week following Bailey's remarks and robust US jobs data.
While most economists believe that Bailey's perspective aligns with the majority on the Bank of England's nine-member Monetary Policy Committee, some have noted that he seems to be part of the dovish faction following recent comments from Chief Economist Huw Pill and rate setter Catherine Mann.