The British pound fell against the euro and weakened versus the dollar on Monday, as traders reacted to the crisis facing UK Prime Minister Sir Keir Starmer, alongside the impact of expectations for future interest rate cuts on the currency.

Morgan McSweeney, Starmer’s chief of staff, resigned on Sunday, saying he took responsibility for advising the prime minister to appoint Peter Mandelson as ambassador to the United States despite his known links to Jeffrey Epstein.

Even so, Starmer remains under growing pressure as the fallout from the Epstein case continues and difficult local elections approach.

The euro rose 0.49% in the latest trading against the pound to 87.22 pence, close to a two-week high, although the European currency remains broadly stable against sterling since the start of the year.

Against the dollar, the pound slipped slightly to $1.3607 after falling about 0.2% earlier in the session.

Politics in focus for UK assets

UK government bonds slightly underperformed their European peers on Monday, with markets focused on Starmer’s position, though moves remained limited.

Many bond investors fear that a new Labour prime minister could shift toward more left-leaning policies and higher spending, while currency markets typically dislike political instability.

The government now faces the possibility of publishing near-complete private correspondence between officials regarding Mandelson’s appointment, in what could prove politically embarrassing.

A by-election in Manchester later this month, along with local elections in May, could also deliver another blow to Starmer’s leadership.

Chris Turner, head of global markets at ING, said pressure is expected to continue on both sterling and UK government bonds amid market speculation about possible changes in the occupants of 10 and 11 Downing Street, referring to the prime minister and finance minister. He added that, alongside the dovish tone seen at last week’s Bank of England meeting, the pound is under pressure.

Diverging rate-cut bets

Sterling was also affected by the Bank of England’s decision last week to keep interest rates unchanged, with a closer-than-expected vote split that pushed traders to increase bets on further cuts this year.

By contrast, the European Central Bank is expected to keep rates steady for the foreseeable future, reducing the pound’s appeal versus the euro amid expectations of relatively lower yields.

Neil Jones, managing director of FX sales and trading at TJM Europe, said the pound appears set to continue its broader weak trend as political uncertainty rises.

Three-month risk reversals, which measure the cost difference between euro call options versus pound calls, rose to 67 basis points, the highest level since late November, up from 22 basis points on Thursday. A higher reading signals stronger bullish positioning in the euro versus the pound.

The euro also rose about 0.4% against the dollar on Monday. Some analysts noted that a Bloomberg report saying China advised banks to limit their holdings of US Treasuries added pressure on the dollar.

Silver prices rose by about 6% in the European market on Monday, extending their recovery for a second consecutive session from a seven-week low, and trading once again above the $80 per ounce level, supported by active buying from lower levels.

The rally is also supported by the current decline in the US dollar in the foreign exchange market, ahead of a series of important US economic releases that will provide strong evidence about the Federal Reserve’s interest rate path.

Price Overview

Silver prices today rose by 6.0% to $82.48 per ounce, from an opening level of $77.87, with a session low recorded at $77.87.

At Friday’s settlement, silver gained 9.75%, marking its third advance in the past four sessions, after hitting a seven-week low earlier in trading at $64.08 per ounce.

Over the past week, silver fell by 8.65%, posting its second consecutive weekly loss, amid ongoing correction and profit-taking from record levels, and concerns related to higher margin requirements on gold and silver futures contracts.

US Dollar

The US Dollar Index fell 0.4% on Monday, extending losses for a second straight session and reflecting continued weakness in the US currency against a basket of major and secondary currencies.

The decline is driven by negative pressures led by tighter scrutiny of capital spending by major technology companies, rising concerns about AI-related disruption in the software sector, and liquidity and margin pressures linked to gold and silver markets.

US Interest Rates

San Francisco Federal Reserve President Mary Daly said on Friday that one or two additional rate cuts may be needed to address weakness in the labor market.

According to the CME FedWatch tool, the probability of keeping US interest rates unchanged at the March meeting stands at 85%, while the probability of a 25 basis point rate cut is priced at 15%.

To reprice these expectations, investors are closely monitoring upcoming US economic data, along with further comments from Federal Reserve officials.

Starting Tuesday, several key US data releases are due, including retail sales, the delayed jobs report on Wednesday, weekly jobless claims on Thursday, and core inflation data for January on Friday.

Gold prices rose more than 1.5% in the European market on Monday, extending gains for a second consecutive session and trading back above the psychological $5,000 per ounce level, supported by the current decline in the US dollar against a basket of major global currencies.

Following less aggressive comments from several Federal Reserve officials, traders are watching closely this week for a series of key US economic releases that will provide strong evidence about the path of US interest rates over the course of this year.

Price Overview

Gold prices today rose by 1.65% to $5,047.18 per ounce, from an opening level of $4,964.30, with a session low recorded at $4,964.30.

At Friday’s settlement, gold gained 3.7%, marking its third advance in the past four sessions, driven by safe-haven buying amid geopolitical tensions between the United States and Iran.

Over the past week, gold posted a 1.45% gain, recording its fourth weekly rise in the last five weeks.

US Dollar

The US Dollar Index fell 0.4% on Monday, extending losses for a second straight session and reflecting continued weakness in the US currency against a basket of major and secondary currencies.

A weaker dollar makes dollar-denominated gold bullion more attractive to holders of other currencies, supporting demand.

The dollar is facing negative pressure from tighter scrutiny of capital spending by major technology companies, rising concerns about AI-driven disruption in the software sector, and liquidity and margin-related pressures linked to gold and silver markets.

US Interest Rates

San Francisco Federal Reserve President Mary Daly said on Friday that one or two additional rate cuts may be needed to address weakness in the labor market.

According to the CME FedWatch tool, the probability of leaving US interest rates unchanged at the March meeting stands at 85%, while the probability of a 25 basis point rate cut is priced at 15%.

To reprice these expectations, investors are closely monitoring upcoming US economic data as well as further comments from Federal Reserve officials.

Starting Tuesday, several key US data releases are due, including retail sales, the delayed jobs report on Wednesday, weekly jobless claims on Thursday, and core inflation data for January on Friday.

Gold Outlook

Kelvin Wong, Senior Market Analyst for Asia Pacific at OANDA, said the very short-term relationship during the session between the dollar and silver, as well as gold, is helping push precious metals higher.

Tim Waterer, Chief Market Analyst at KCM Trade, said bargain hunting is also driving gold back above the $5,000 level.

He added that any weakness in employment data could support gold’s recovery, noting that no Federal Reserve rate cut is expected before mid-year unless labor market data shows a sharp deterioration.

SPDR Fund

Holdings of SPDR Gold Trust, the world’s largest gold-backed ETF, declined by 1.72 metric tons on Friday, marking the fourth consecutive daily decrease, bringing total holdings down to 1,076.23 metric tons, the lowest level since January 15.

The euro rose in European trading on Monday against a basket of global currencies, extending gains for a second straight session versus the US dollar and recording a one-week high, supported by continued downside pressure on the US currency ahead of a data-heavy week in the United States.

Following the European Central Bank’s first monetary policy meeting of the year, expectations for a rate cut in March have eased, despite the recent slowdown in inflationary pressures.

Price Overview

Euro exchange rate today: the euro rose against the dollar by more than 0.35% to $1.1854, the highest level in a week, up from the day’s opening at $1.1810, and recorded a session low at $1.1809.

The euro closed Friday up 0.3% against the dollar, its first gain in three sessions, as part of a recovery move from a two-week low at $1.1766.

Over the past week, the euro lost 0.3% against the dollar, marking its first weekly decline in three weeks, due to correction and profit-taking from five-year highs.

US dollar

The dollar index fell 0.35% on Monday, extending losses for a second consecutive session, reflecting continued weakness in the US currency against a basket of major and minor currencies.

The decline comes under negative pressure led by tighter scrutiny of capital spending by major technology companies, rising fears of AI-driven disruption in the software sector, and liquidity and margin-related pressures linked to gold and silver.

The dollar’s weakness comes at the start of a week that will bring several key US releases, including retail sales, inflation data, and the delayed jobs report due Wednesday.

European interest rates

The European Central Bank kept its main interest rates unchanged last week at 2.15%, the lowest level since October 2022, marking the fifth consecutive meeting without a change.

ECB President Christine Lagarde said the bank is “not pre-committing to a specific rate path,” stressing that the March decision will depend entirely on incoming data in the coming weeks.

Lagarde added that the ECB is closely monitoring the euro exchange rate, noting that the currency’s current strength helps restrain imported inflation and may support reaching targets without the need for further tightening.

Money markets repriced expectations after the meeting, with the probability of a 25-basis-point ECB rate cut in March falling from 50% to 30%.

Investors are waiting for further eurozone data on inflation, unemployment, and wages to reassess those expectations.