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During early European trading on Monday, GBP/USD fell modestly to around 1.3060. Safe-haven flows from rising geopolitical risks supported the U.S. dollar, dragging GBP/USD lower. Investors will be closely watching UK employment data due out on Tuesday.
Data released by the U.S. Bureau of Labor Statistics on Friday showed that the producer price index (PPI) increased by 1.8% at an annual rate in September and 1.9% in August, which was higher than market expectations of 1.6%. Meanwhile, core producer prices climbed an annualized 2.8% over the same period, compared with analysts’ forecasts of 2.7%. On a monthly basis, U.S. producer prices were flat in September, while core producer prices rose 0.2% during the same period.
Fed officials have now shifted from trying to curb inflation to trying to keep the job market healthy, the other half of their so-called dual mandate. However, a stronger-than-expected September jobs report and reduced expectations of another 50 basis point interest rate cut by the Federal Reserve in November could boost USD/GBP.
On the pound, dovish comments from Bank of England Governor Andrew Bailey that the Bank of England may become more aggressive in cutting interest rates put pressure on the pound. Markets have priced in a 90% chance of a Bank of England rate cut in November. The Bank of England’s Monetary Policy Committee (MPC) will meet on November 7 to announce an interest rate decision. Tuesday’s UK employment data will be closely watched ahead of key events in the UK and could provide some hints on labor market conditions and the outlook for UK interest rates.
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