The British pound posted a slight gain against the dollar and euro on Monday, but remained near multi-week lows against both currencies, as investors continued to focus on Bank of England policy and the UK's deteriorating fiscal outlook.

Sterling rose by 0.3% against the dollar to reach $1.3452, slightly above its eight-week low of $1.33655 recorded last week.

UK economic data last week was generally mixed—while the labor market showed signs of further slowdown, consumer inflation unexpectedly rose to its highest level in over a year.

Despite that data, investors are still almost fully pricing in a quarter-point interest rate cut by the Bank of England at its upcoming meeting on August 7, with total expected cuts reaching 50 basis points by year-end.

Sterling also gained around 0.2% against the euro, reaching 86.575 pence per euro, after touching a 14-week low last week.

Currency strategists at Goldman Sachs wrote in a note: “We believe the rise in the UK’s fiscal risk premium is the main driver of the euro’s recent outperformance against the pound.”

The UK remains in a fragile fiscal position, which worsened earlier this month after the government faced a major rebellion within its own party against welfare reform plans, raising doubts about its ability to reduce spending.

Many economists and analysts believe the government will be forced to raise taxes by billions of pounds later this year to comply with fiscal rules, especially amid slowing economic growth.

Jane Foley, Head of FX Strategy at Rabobank, said: “Sterling’s struggle to keep up with the euro’s performance this year reflects a shift in market optimism toward Germany and the eurozone.”

Foley added: “Given the UK’s fiscal concerns, we continue to favor buying the euro against the pound on dips.”

Meanwhile, Deloitte said on Monday that its consumer confidence index fell to its lowest level since Q1 2024, reflecting growing concerns about job security and income growth.

Retail sales data is due on Friday and may offer a clearer picture of consumer sentiment, while preliminary results of the purchasing managers’ index (PMI) survey on business activity are expected Thursday.

As for the US dollar, its index (which measures performance against a basket of major currencies) fell by 0.2% to 98.2 points as of 11:32 GMT, after reaching a high of 98.5 and a low of 98.1.

Gold prices rose in the European market on Monday, continuing to move in positive territory for the second consecutive day, supported by the decline in US dollar levels in the foreign exchange market.

Investors are closely monitoring developments in US trade talks, awaiting any potential catalysts that could move the market—including further signals about US interest rate cuts in the second half of this year.

The Price

• Gold prices today: Gold rose by 0.65% to ($3,370.84), from the opening level of ($3,349.84), after recording a low of ($3,345.13).

• At Friday’s settlement, gold prices rose by 0.35%, marking the second gain in the past three days, as the upward momentum in the US dollar paused.

• Last week, gold lost about 0.2%, marking its first weekly decline in the past three weeks, due to a correction and profit-taking from a three-week high of $3,377.47 per ounce.

The US Dollar

The US Dollar Index fell by 0.3% on Monday, extending losses for the second consecutive session and moving away from a three-week high, reflecting continued weakness in the dollar against a basket of major and minor currencies.

Aside from profit-taking, the dollar is weakening following comments from several Federal Reserve officials about the potential for a rate cut in July.

Federal Reserve Governor Christopher Waller stated on Friday that he favors a rate cut at the July meeting, believing that tariffs are likely to have only a limited impact on inflation.

Waller added that the underlying data “do not indicate a healthy labor market in the private sector,” and that the Federal Reserve “should act in advance” of any potential employment slowdown.

His comments came amid near-daily criticism from US President Donald Trump of Fed Chair Jerome Powell for hesitating to cut interest rates.

US Interest Rates

• Following Waller’s comments and according to the CME Group’s FedWatch tool: the pricing of a 25 basis point US rate cut in the July meeting rose from 2% to 5%, while the probability of keeping rates unchanged fell from 98% to 95%.

• The probability of a 25 basis point rate cut in the September meeting rose from 58% to 62%, while the probability of no change declined from 42% to 38%.

• To gain further clarity on the US interest rate outlook for this year, investors are awaiting comments from Fed Chair Jerome Powell on Tuesday, along with a series of key US economic data releases.

Outlook on Gold Performance

• Tim Waterer, Chief Market Analyst at KCM Trade, said: “The dollar started the week on a soft note, giving gold a chance to make early gains as the tariff deadline approaches.”

• Waterer added: “The closer we get to the critical August 1 deadline without any new trade deals, the more likely gold will try to rally toward the $3,400 level—or even higher.”

SPDR Fund

Holdings at SPDRGold Trust—the world’s largest gold-backed exchange-traded fund—fell by about 4.87 metric tons on Friday, marking the second consecutive daily decline, bringing the total down to 943.63 metric tons, the lowest level since June 16.

The euro rose in the European market on Monday against a basket of global currencies, continuing its recovery for the second consecutive day from a three-week low against the US dollar, amid active buying from lower levels.

The European Central Bank is scheduled to meet this week, and is expected to keep interest rates unchanged after a series of cuts, with markets anticipating more clues on the eurozone rate path through the end of the year.

The Price

• Euro exchange rate today: The euro rose against the dollar by 0.2% to ($1.1652), from today’s opening price of ($1.1628), after recording a low of ($1.1615).

• The euro ended Friday’s trading up by 0.25% against the dollar, marking its second gain in the last three days as part of a recovery from a three-week low of $1.1556.

• Last week, the euro lost 0.55% against the dollar, posting a second consecutive weekly loss due to tough trade negotiations between the European Union and the United States.

The US Dollar

The US Dollar Index fell by 0.3% on Monday, extending losses for the second straight session and moving away from a three-week high, reflecting continued weakness in the dollar against a basket of major and minor currencies.

Aside from profit-taking, the dollar is weakening after comments from some Federal Reserve officials regarding the likelihood of a rate cut in July.

Federal Reserve Governor Christopher Waller said on Friday that he prefers a rate cut at the July meeting, believing that tariffs are likely to have only a limited impact on inflation.

Waller added that the underlying data “does not point to a healthy private-sector labor market,” and that the Federal Reserve “needs to get ahead” of any potential slowdown in employment.

Waller’s comments came amid near-daily criticism from US President Donald Trump toward Fed Chair Jerome Powell for hesitating to cut rates.

The European Central Bank

• The European Central Bank will meet on Wednesday and Thursday this week to assess monetary policy in light of recent economic developments in the eurozone.

• The bank is widely expected to keep eurozone interest rates unchanged at 2.15%—the lowest level since October 2022.

• Markets are awaiting further signals on whether the European Central Bank will continue easing monetary policy and cutting interest rates throughout this year.

The Japanese yen rose in the Asian market on Monday at the start of the trading week against a basket of major and minor currencies, heading toward its first gain in the last three days against the US dollar, amid accelerating safe-haven buying of the currency—especially after Japan’s ruling coalition lost its majority in the House of Councillors.

Data released last week in Tokyo showed that inflationary pressures on monetary policymakers at the Bank of Japan had eased, reducing the likelihood of a rate hike in July.

The Price

• Yen exchange rate today: The dollar fell against the yen by 0.6% to (¥147.88), from Friday’s closing price of (¥148.80), after reaching a high today of (¥148.66).

• The yen had lost 0.15% against the dollar at Friday’s settlement, marking its second consecutive daily loss, after weaker-than-expected core inflation data from Japan.

• Last week, the yen declined by 0.95% against the dollar, posting a second straight weekly loss.

Japanese Elections

The Liberal Democratic Party, led by Prime Minister Shigeru Ishiba, won 47 seats—fewer than the 50 required to secure a majority in the 248-seat House of Councillors, in an election where half the seats were up for grabs.

While the election results do not directly determine whether Ishiba’s administration will fall, they further burden the embattled leader, who also lost control of the more powerful House of Representatives in October 2024.

Opinions and Analysis

• Carol Kong, a currency strategist at the Commonwealth Bank of Australia, said that markets had likely priced in a much worse outcome for the ruling coalition ahead of the election, and questioned the yen’s ability to sustain its strength.

• Kong added: “It’s still unclear whether Ishiba can actually remain as prime minister… and what that means for Japan’s trade negotiations with the United States. Prolonged political uncertainty would negatively impact Japanese assets, including the yen.”

Japanese Interest Rates

• Data released Friday showed that Japan’s core inflation in June slowed more than market expectations, reflecting reduced inflationary pressure on the Bank of Japan.

• Following the data, the pricing of the likelihood that the Bank of Japan will raise interest rates by a quarter percentage point in the July meeting fell from 45% to 35%.

• To reassess these expectations, investors are awaiting more data on inflation, unemployment, and wages in Japan.