The GBP/USD pair edged lower to around 1.3150 during Monday’s early Asian session, ending a three-day winning streak as the US dollar (USD) gained ground on optimism surrounding a deal to end the record-long US government shutdown.
The pound sterling (GBP) came under mild pressure as traders turned their focus to a scheduled speech by Bank of England (BoE) Deputy Governor Clare Lombardelli later in the day for further policy guidance.
USD strengthens as shutdown deal nears completion
According to Bloomberg, the US government shutdown appears close to resolution after a group of centrist Senate Democrats agreed to support a deal that would reopen the government and fund multiple agencies through next year.
The agreement includes provisions to ensure federal employees receive back pay and allows states to resume delayed transfers. Certain departments would be funded through January 30, while others would receive full-year allocations.
Progress on the bill has boosted confidence in US fiscal stability, lending support to the greenback and weighing on the GBP/USD pair.
Fed rate cut expectations cap dollar gains
Despite the USD’s rebound, expectations for further monetary easing by the Federal Reserve (Fed) continue to limit upside momentum. Weak US labor data and subdued consumer sentiment have led investors to increase bets on a rate cut in December. The CME FedWatch tool shows markets are pricing in roughly a 66% probability of a 25-basis-point reduction by year-end.
BoE cautious ahead of UK budget
On the UK front, the BoE maintained its benchmark rate at 4.0% last week, citing the need for prudence ahead of the UK government’s Autumn Budget. Governor Andrew Bailey indicated that rate cuts are likely on the horizon, and economists now expect a potential move before Christmas. However, the central bank reiterated that any easing will depend on incoming inflation data and the overall economic outlook.
As traders await Deputy Governor Lombardelli’s remarks, attention remains focused on whether the BoE will signal a clearer timeline for its first rate cut, which could influence near-term direction for the pound.
