Summary
The pound sterling strengthened against the US dollar on Monday, with a gain of 0.2%, as investors adjust their expectations regarding the Bank of England's policy direction. Sterling rose to $1.2558 at the time of writing, supported by a view that the BoE's cycle of policy easing will be gradual.
Expectations for the Bank of England's Policy Direction
Investors are closely watching speeches from BoE deputy governor Clare Lombardelli and external policy member Swati Dhingra, hoping to gain further clarity on the central bank's interest rate outlook. According to Reuters, traders expect the BoE to leave interest rates unchanged at 4.75% in the December meeting and prices in 75 basis points (bps) cut to 4% by 2025.
The Pound's Rally Aided by a Weaker US Dollar
The pound's rally was also aided by a weaker US dollar, as investors continued to digest news of president-elect Donald Trump's selection of Scott Bessent as Treasury secretary. Bessent, a former hedge fund executive, is expected to oversee economic and tax policy. Stephen Spratt, a strategist at Societe Generale, described Bessent as a "safe hands" candidate, which added to investor confidence.
Sterling Lower Against the Euro
Meanwhile, sterling was also lower against the euro (GBPEUR=X), slipping 0.2% to €1.1996. Despite this, the pound's rally on Monday marked a significant gain, and its strength is expected to continue in the coming days as investors remain optimistic about the UK economy.
Gold Prices Fall Amid Profit-taking and Geopolitical News
Gold prices fell by nearly 2% on Monday, as investors took profits following a five-day rally. The announcement of Bessent as the next US Treasury secretary also put pressure on gold prices, with some analysts suggesting that it may reduce trade uncertainty between the US and China.
Spot Gold Loses Momentum
Spot gold lost 1.7% to $2,670.70 per ounce, while US gold futures retreated 1.5% to $2,671.10 at the time of writing, falling sharply from a three-week high. This decline in gold prices is likely due to profit-taking and the changing expectations regarding the BoE's policy direction.
Ongoing Tensions Between Western Powers and Major Oil Producers
Oil prices dipped on Monday following a strong 6% rally last week, but ongoing concerns over supply disruptions amid escalating tensions between Western powers and major oil producers Russia and Iran helped limit the downside. Brent crude futures slipped 0.9%, trading at $74.50 per barrel, while US West Texas Intermediate (WTI) retreated 1.2% to $70.43 per barrel at the time of writing.
Medium-term Outlook for Oil Prices
Despite the modest retreat in prices, the oil market remains poised for potential rebounds as geopolitical risks and a revival in Chinese demand could support bullish trends into the year-end. Goldman Sachs remains relatively optimistic about oil prices in the medium term, forecasting that Brent crude will average between $70 and $85 per barrel next year.
Conclusion
In summary, the pound sterling strengthened against the US dollar on Monday, with a gain of 0.2%, as investors adjust their expectations regarding the Bank of England's policy direction. Sterling rose to $1.2558 at the time of writing, supported by a view that the BoE's cycle of policy easing will be gradual. Meanwhile, gold prices fell amid profit-taking and geopolitical news, while oil prices dipped due to ongoing concerns over supply disruptions. Overall, the financial markets continue to fluctuate in response to changing expectations and economic data, with some analysts predicting potential rebounds in key commodities like oil.