- The pound sterling declined to $1.2710, nearing a one-month low, as investors anticipate faster interest rate cuts from the Bank of England.
- This decline comes amid fears of a US recession, which has also caused UK government bond yields to fall to multi-month lows.
- Now, markets expect a quarter-point interest rate cut from the Bank of England by December.
On Monday, interest rate futures pointed to a total of 56 basis points of cuts this year, compared to the 47 basis points expected on Friday. In addition, the yield on two-year government bonds, which reflect changes in borrowing costs, fell 8 basis points to 3.526%, the lowest since April 2023. Last week, the Bank of England cut its benchmark interest rate from a 16-year high of 5.25% to 5.0%, the first cut since 2020.
And love electronic trading platforms, the yield on the UK’s 10-year bond fell to a six-month low. According to the performance, the yield on the UK’s 10-year bond fell below 3.8%, the lowest level in six months, as investors increasingly bet on the Bank of England implementing further rate cuts in response to concerns about a possible recession in the United States. Concurrently, markets are expecting a quarter-point rate cut by December, with futures pointing to a 56-basis point cut by the end of the year, up from 47 basis points on Friday.
Last week, the Bank of England cut interest rates by 25 basis points to 5% from a 16-year high of 5.25%, the first cut since 2020. Meanwhile, the UK’s new chancellor of the exchequer announced a series of public spending cuts and strongly hinted that there would be tax increases in the autumn budget to offset part of the £22 billion funding gap.
According to stock trading platforms, the US stock market faced significant declines as trading entered its final hour on Monday, continuing a recent trend of increased volatility. According to trading, the S&P 500 index fell 3.3%, with losses fluctuating throughout the day. During the morning session, the index fell 4.3%, but by lunchtime, it had managed to trim its decline to around 1.8%.
S&P 500, Nasdaq Composite lead declines
The S&P 500’s 3.3% drop mirrored the broader market’s struggles, but the tech-heavy Nasdaq Composite saw even sharper losses. The Nasdaq fell 3.8% as tech stocks, which have been under pressure in recent days, resumed selling. Additionally, the Russell 2000, which focuses on small-cap companies, also saw a sharp decline, falling 3.7%.
Treasury yields add to market volatility
Adding to the market turmoil, the yield on the policy-sensitive 2-year Treasury note saw notable volatility. It ended the day slightly higher at 3.89%. Overnight, the yield fell to a 16-month low but managed to rally to 3.95% in the afternoon. Furthermore, the reversal in Treasury yields underscores the uncertain environment investors are navigating.
Market sentiment and future expectations
The continued volatility in the US stock market was driven by a combination of economic data, geopolitical concerns and investor sentiment. Moreover, the sharp decline in the morning followed by a partial recovery and then another decline suggests that the market is struggling to find direction amidst conflicting signals. Investors are grappling with various factors, including the Fed’s monetary policy stance, inflationary pressures and a potential economic slowdown. Overall, the technology sector, which was previously an important driver of market gains, is now witnessing a clear sell-off, contributing to broader market instability.
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Technical forecasts for the GBP/USD pair today:
According to the performance on the daily chart, the downward trajectory of the GBP/USD price is strengthening. As we mentioned before, moving around and below the 1.2700 level will strengthen the bears’ control over the trend and thus prepare for stronger losses. Technically, the next important support will be 1.2580. On the other hand, and over the same time frame, the psychological resistance of 1.3000 will remain the most important for the general trend to turn to the upside.
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