Pound Slips Amid Economic Forecasts and Rate Cut Speculations

The pound dipped slightly as investors anticipate a potential U.S. rate cut and assess the UK's economic outlook. Despite reaching recent highs last week, concerns remain about the economy's future trajectory. Economic growth figures set for release could influence the Bank of England's upcoming rate decision.

The pound saw a slight decrease on Monday amid investor unease and anticipation ahead of a potentially impactful week for global markets, marked by speculation of a U.S. rate cut. Sterling had previously reached six-week highs, driven by unexpected positive reactions to finance minister Rachel Reeves' budget and prevailing expectations of a weakening dollar if the Federal Reserve opts for further rate cuts beyond December's anticipated move.

By the day's close, the pound had depreciated by 0.1% against both the dollar and the euro, trading at $1.3325 and 87.45 pence, respectively. This comes as UK economic growth data for October is set for release on Friday, with economists' forecasts indicating a 1.4% annual rise and a modest 0.1% increase from September, despite challenges posed by disruptions like the Jaguar Land Rover cyberattack.

Kathleen Brooks, research director at XTB, noted a mix of optimistic indicators for the UK economy this week but warned of an underlying stagnation in the coming months. Money market forecasts suggest an 87% probability that the Bank of England will reduce rates by a quarter point to 3.75% on December 18, although future policy directions remain uncertain, with only one further rate cut predicted in the first half of 2026, followed by a stabilization phase.

(With inputs from agencies.)