Daily digest market movers Pound Sterling weakens against US Dollar

The Pound Sterling drops to near 1.2900 against the US Dollar (USD) in London trading hours on Monday. The GBP/USD pair declines as the US Dollar extends Friday’s recovery and aims to revisit a four-month high. The US Dollar Index (DXY), which gauges Greenback’s value against six major currencies, climbs above 105.30.

The Greenback strengthens on expectations of higher investment and spending in the United States (US) as Republicans look set to take control of both the Senate and the House of Representatives, a scenario that would allow the Trump administration to implement fiscal policies quickly. 

The expected change in government policies, from higher import tariffs to lower taxes, would boost the US fiscal deficit and inflationary pressures, a scenario that could force the Federal Reserve (Fed) to opt for a restrictive policy stance. However, Fed Chair Jerome Powell pushed back expectations of any near-term impact on the monetary policy last Thursday after the central bank cut interest rates by 25 basis points (bps) to 4.50%-4.75%.

This week, a slew of Fed officials are lined up for commentary on Thursday’s interest rate decision and guidance for monetary policy action in the last meeting of this year in December. In addition to Fed speeches, investors will also focus on the US Consumer Price Index (CPI) data for October, which will be published on Wednesday. The CPI report is expected to show that the annual headline inflation accelerated to 2.6% from 2.4% in September, with core figures growing steadily by 3.3%..