Sept 9 (Askume) – Sterling fell to a nearly three-week low against the dollar on Monday as traders tempered expectations for a big U.S. interest rate cut next week and awaited domestic economic data that could raise expectations for British interest rates.
Sterling fell 0.42% to $1.30745 – its lowest level since Aug. 21.
Most major currencies were also under pressure, with the dollar recovering from last week’s losses as data on Friday showed US job growth in August was weaker than expected but only saw a persistent slowdown in the labor market.
Traders raised the probability of a 50-basis-point rate cut to above 50% on Friday but lowered it to 25% on Monday as they looked to data to indicate there was no panic buying on the horizon.
This week investors will be looking at UK labor market data, UK July GDP data and US inflation data for cues on the direction of monetary policy on both sides of the Atlantic.
Britain’s labour market shrank significantly last month, with employment falling sharply and wage growth slowing, a survey of recruiters showed on Monday . Official data on Tuesday is expected to show strong job growth while wage growth slowed further.
Kit Jewkes, currency strategist at Societe Generale, said: “Any unexpected uptick in UK data (wage growth expected to slow to 5%, GDP growth of 0.6% per 3 million, monthly GDP growth of 0.2% is likely to be negative. An increase) could open the way for EUR/GBP to fall below 0.84,” he said in a report.
EUR/GBP is trading at 84.84p, rising for a seventh day in a row.
Market pricing shows that traders expect the Bank of England (BOE) to cut interest rates by 45 basis points (bps) before the end of this year, while the Federal Reserve is expected to cut interest rates by 112 basis points.
The pound hit a two-year high last month amid growing differences between the two countries’ monetary policy outlook. Although the Bank of England will keep interest rates unchanged next week, traders see a 69% chance of a 25 basis point rate cut in November.
