Pound rises against a weaker dollar

by Jonathan Adams

The pound was nearly 0.2% higher against the dollar at $1.2664

The pound inched up against a broadly weaker dollar on Monday, as markets looked beyond Britain’s upcoming general election and instead set their focus on the outlook for monetary policy.

The pound was nearly 0.2% higher against the dollar at $1.2664, having dropped to $1.2622 on Friday, its lowest level since May 15.

Britain heads to the voting booth on July 4 but with polls steady and signalling the opposition Labour Party is likely to win a majority, markets are showing little concern about the outcome.

Given the stability in the polls, a Labour victory looks like a foregone conclusion, according to Simon Harvey, head of FX analysis at Monex.

He added: There is not much room for fiscal manoeuvre whoever comes in so it does not make the UK election a major market event.

Instead, much of the focus remains on the outlook for monetary policy.

The BoE last week held its main interest rate steady at a 16-year high of 5.25%, but the possibility of a future rate cut moved closer as some policymakers said their thinking was now “finely balanced”.

We believe the BoE took a step in the direction of an August rate cut last week, according to ING FX strategist Francesco Pesole.

Money markets imply almost a 50% probability of a quarter-point rate cut at the central bank’s August meeting.

We see the BoE joining the global easing cycle but they are starting from a higher base than others, Harvey added, citing the ECB and Swiss National Bank, who have both already reduced interest rates in this global easing cycle.

We are bullish on sterling but we prefer to express it in crosses just because the dollar dynamic is posing a lot of uncertainty, he said.

Disclaimer: The opinions expressed by our writers are their own and do not represent the views of Trading and Investment News. The information provided on Trading and Investment News is intended for informational purposes only. Trading and Investment News is not liable for any financial losses incurred. Conduct your own research by contacting financial experts before making any investment decisions.

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