GBP/USD rebounded toward 1.3150 in early Asian trading on Monday, ending a three-day slide as the US dollar strengthened on growing optimism that the lengthy US government shutdown may soon conclude. Market participants are also awaiting comments from Bank of England Executive Director Clare Lombardelli later today.
According to a Bloomberg report, a group of centrist Senate Democrats has agreed to back a temporary funding package to reopen the government and finance certain departments and agencies through next year. Under the proposal, furloughed federal employees would receive back pay, states would resume delayed federal transfers, and some agencies would be funded only until January 30 while others receive full-year appropriations. The prospect of ending the shutdown is supporting the dollar and weighing on the pound.
Meanwhile, new concerns about the US labor market have nudged up expectations for further Federal Reserve rate cuts this year. The CME FedWatch tool shows about a 66% chance of a 25-basis-point cut in December.
Last week, the BoE held its policy rate at 4.0%, citing caution ahead of the UK government’s Autumn Budget in November. Governor Andrew Bailey signaled that rate cuts are on the way, and economists now expect at least one before Christmas. The bank emphasized that any future easing will depend on how inflation evolves.
