The focus in the market this week is primarily on the upcoming central bank meetings in the UK and the US. It is widely anticipated that there will be no adjustments to monetary policy, signalling the conclusion of an aggressive period of tightening.
The Bank of England is expected to maintain its interest rates at their current levels until the latter part of the following year. At that point, there is an anticipation that the central bank's committee will begin to reduce rates, in an effort, to stimulate economic growth, especially in the face of a highly challenging economic landscape.
Recent data from the UK indicates that the job market, while still strong, is showing signs of a slight cooling, with the headline unemployment rate holding steady at 4.2%. Meanwhile, in the United States, Treasury yields have exhibited notable volatility throughout the week. The benchmark 10-year yield reached 5%, its highest point since 2007, underscoring the uncertainties that investors are confronting in the months ahead. In light of a dimming economic outlook, it is expected that rate cuts in the US will commence in the latter half of the following year.
The European Central Bank adhered to its current monetary policy last week, in line with expectations. It is increasingly likely that the ECB has reached its peak interest rates, given the presence of weak economic data, which raises the spectre of a looming recession.
In the foreign exchange markets, the US dollar's strength continues to be a driving force, supported by its economic performance and the inflow of safe-haven investments. The GBP/USD currency pair remains subject to fluctuations above the critical level of 1.2000, while the GBP/EUR pair is trading near a five-month low below the pivotal level of 1.1500.
GBP is poised to face ongoing pressure against the EUR in the days ahead. A potential shift in this trend could be contingent on either a significant drop in Eurozone inflation, expected to be reported on Tuesday, or an unexpectedly "hawkish" stance from the Bank of England during its guidance update on Thursday.
