Daily digest market movers Pound Sterling clings to Monday’s recovery against US Dollar

The Pound Sterling holds onto Monday’s recovery against the US Dollar (USD) near 1.2680 in London trading hours on Tuesday. The GBP/USD pair bounced back after posting a fresh six-month low near 1.2600 as the US Dollar’s rally appears to have stalled after posting a fresh year-to-date high. The US Dollar Index (DXY), which gauges Greenback’s value against six major currencies, corrects from 107.00.

The near-term outlook of the US Dollar remains firm as market participants expect the economic agenda of President-elected Donald Trump to boost inflationary pressures and prompt economic growth, a scenario that will lead the Federal Reserve (Fed) to deliver fewer interest rate cuts.

Trump’s victory in both US houses (the Senate and the House and Representatives) and better-than-expected monthly Retail Sales data for October have led traders to pare back bets of an interest rate cut in the December meeting. The probability for the Fed to reduce interest rates by 25 bps to 4.25%-4.50% has diminished to 58.4% from 77% a month ago.

Global brokerage firm Nomura expects the Fed to pause the policy-easing cycle in December. "We currently expect tariffs will drive realized inflation higher by the summer, and risks are skewed towards an earlier and more prolonged pause,” analysts at Nomura said. Nomura expects the Fed to cut interest rates by 25 bps in March and June meetings next year.