Sterling fell on Monday as investors took profits on the pound’s best monthly performance against the dollar this year in May and awaited key global events and data this week.
Sterling, which rose 2% against the dollar last month, was down 0.2% on Monday at $1.2717. The euro, which fell 0.2% against the pound in May, was up 0.2% at 85.22 pence.
This week there are few UK-centric catalysts to boost the pound, but plenty of other data and events that could move the euro and dollar.
The European Central Bank meets on Thursday and is almost certain to make 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 government bonds are at a premium of about 130 basis points over German two-year Schatz yields, the lowest in about six weeks.
In the United States, monthly employment data throughout the week dominate the macroeconomic calendar, led by Friday’s nonfarm payrolls report, which could prompt investors to revise their current forecasts according to which the Federal Reserve will only make one rate cut this year.
Pepperstone strategist Chris Weston notes that the BoE Policymakers’ Panel (DMP) is due on Thursday, which could explore the recent moderation in price and wage pressures.
Recent data has shown that UK inflation has fallen in recent months, but not as much as some had expected, lowering expectations for the number of rate cuts the BoE could make this year.
Political uncertainty linked to the general elections at the beginning of July is also present. The BoE will only hold one meeting between now and then, on June 20.
“UK swaps do not anticipate a BoE cut until September, so the guidance given here could influence rates and, by extension, the pound,” Mr Weston said.
“As for the elections, the first televised leaders’ debate will take place on Tuesday (9pm UK time), but it is not expected to swing the polls too significantly and therefore should not be a factor in volatility for the pound,” he added.
