The pound strengthened against the dollar on Monday, recovering from a sharp sell-off last Friday, as investors adjust expectations regarding the Bank of England’s (BoE) policy direction. Sterling rose by 0.2%, trading at $1.2558 at the time of writing, supported by a view that the BoE’s cycle of policy easing will be gradual.
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, according to Reuters.
Investors will be closely watching speeches from BoE deputy governor Clare Lombardelli and external policy member Swati Dhingra, hoping for further clarity on the central bank’s interest rate outlook.
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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.
Meanwhile, sterling was also lower against the euro (GBPEUR=X), slipping 0.2% to €1.1996.
Gold prices fell by nearly 2% on Monday, as investors took profits following a five-day rally, with additional pressure coming from the announcement of Bessent as the next US Treasury secretary.
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.
The pause in gold’s upward momentum came amid profit-taking and the news that Trump had selected Bessent, a seasoned fund manager, to oversee US economic and tax policy. This choice raised expectations that the new administration could temper the use of tariffs, easing some of the trade uncertainty between the US and China, said IG market strategist Yeap Jun Rong. Trump has previously proposed a 60% tariff on Chinese goods and a 10% levy on other imports.
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Investor sentiment was also bolstered by reports that Israel was close to reaching a ceasefire with Lebanon, which reduced some geopolitical risks and further weighed on gold’s appeal as a safe haven. Gold is traditionally viewed as a hedge against uncertainty, and easing tensions in the Middle East dampened demand for the precious metal.