The GBP/USD pair struggled around the 1.3150 mark, finally breaking a three-day downward trend in early Asian trading on Monday. The US dollar (USD) gained strength against the British pound (GBP) as indications emerged that the long-standing US government shutdown might be coming to an end. Market participants are likely to focus on a speech by Bank of England (BOE) official Claire Lombardelli later today.
According to reports from Bloomberg, a group of centrist Senate Democrats in the U.S. has reached a tentative agreement that could reopen the government and extend funding for certain departments into the next year.
This agreement includes provisions for federal employees to receive back pay and for states to resume previously delayed federal funds. Under this deal, some departments would receive funding through January 30, while others might have an entire year’s budget allocated. The expectation that the shutdown could resolve soon is likely to bolster the USD, posing challenges for major currency pairs.
On another note, ongoing worries about the U.S. job market have slightly raised investor expectations, contributing to speculation that the Federal Reserve might cut interest rates further this year. Currently, market models suggest there’s about a 66% probability of a 25 basis point (bp) rate cut in December, based on insights from the CME FedWatch tool.
Last week, the Bank of England opted to maintain interest rates at 4.0%, exercising caution ahead of the UK government’s autumn budget in November. Governor Andrew Bailey has hinted at an upcoming rate cut, and economists are generally expecting one before Christmas. However, the Bank of England has also pointed out that any decision regarding future cuts “will therefore depend on developments in the inflation outlook.”
