Pound falls as investors take profits after May rally

Pound falls as investors take profits after May rally
Pound falls as investors take profits after May rally

Sterling fell broadly on Monday, as investors took profits following the pound’s best monthly performance against the dollar this year in May and awaited key global developments and data this week.

The pound, which rose 2% against the dollar last month, fell 0.2% on Monday to $1.2717. The euro, which fell 0.2% against the pound in May, rose 0.2% on the day to 85.22 pence.

This week brings few UK-focused catalysts to boost sterling, but plenty of other data and developments that could move the euro and dollar.

The European Central Bank meets on Thursday and is almost certain to deliver its first interest rate cut since 2019.

Markets currently expect around 57 basis points of easing from the ECB in 2024, compared to around 33 basis points from the Bank of England.

Two-year gilts have a premium of about 130bp to two-year German Schatz yields, the lowest in about six weeks.

In the United States, monthly employment data for the entire week dominates the macroeconomic calendar, culminating with Friday’s nonfarm payrolls report, which could lead investors to adjust their current expectations of little more than a rate cut from the from the Federal Reserve this year.

Pepperstone strategist Chris Weston notes that the Bank of England’s Decision Makers Panel (DMP) will be held on Thursday, which he says could explore the recent moderation in price and wage pressures.

The latest data has shown that British inflation has fallen in recent months, although not as much as some had expected, dampening expectations about the number of rate cuts the BoE could make this year.

There is also a layer of political uncertainty arising from the general election in early July. The BoE only holds one meeting before that date, June 20.

“British swaps do not see the possibility of a BoE cut until September, so guidance in this regard could influence rates and, by extension, the pound,” Weston said.

“On the electoral front, we will see the first televised leaders’ debate on Tuesday (9pm UK time), but this should not influence the polls too much and therefore should not be a volatile event for the pound,” he added. .

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