With two strong weekly gains against the Euro, the British Pound has some momentum going into this new trading session, even though it is a quiet calendar week. The significant movements follow a significant divergence in interest rate forecasts over the past few days between the UK and the Eurozone. In the end, markets in the UK are lowering their estimates for the amount of rate cuts that will be implemented in 2024; nevertheless, betting on rate reduction are increasing in the Eurozone.

Since the announcement of the Eurozone inflation figures, the Euro has been weaker recently and has struggled to gain traction. Francois Villeroy de Galhau, a policymaker at the European Central Bank, stated last week that the bank would take a closer look at reducing borrowing prices later in 2024 rather than right now. Having said that, the recent fall in inflation puts the European Central Bank’s 2% inflation objective back into sharp relief—something that may indicate a change in monetary policy—for the first time since the summer of 2021.

The U.S. Dollar struggled to regain some footing this morning as markets took stock of cautious remarks from Federal Reserve Chair Jerome Powell. In fact, Powell said on Friday it was clear that U.S. monetary policy was slowing the economy as expected, with the benchmark overnight interest rate “well into restrictive territory.” Looking forward, investors await a key employment report later in the week that could influence the outlook for U.S. interest rates.

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