- The pound sterling falls to monthly lows, trading around 1.3655.
- The market is in risk averse mode, weighed by Chinese real estate Evergrande and the general strength of the US dollar.
- The central banks of both countries, to hold their monetary policy meetings this week.
The GBP/USD it is falling for the third day in a row, down 0.61%, trading at 1.3657 at the time of writing.
Market sentiment remains pessimistic as Chinese real estate developer Evergrande scrambles to meet interest payments on its bonds due this week, triggering a global sell-off of everything with the word “risk” attached to it. In addition, the possibility of an announcement by the Federal Reserve to reduce its purchases of bond assets this week also weighed.
Meanwhile, the US dollar index, which measures the dollar’s performance against a basket of six currencies, is flat at 93.24.
The central banks of both countries will hold their monetary policy meetings this week
In the United States, the Federal Reserve will meet September 21-22 to discuss monetary policy. On Wednesday it will release its Summary of Economic Projections and monetary policy statement, which is expected to keep interest rates unchanged. The highlight of the meeting will be the QE reduction. If there is any kind of announcement in the statement, it could be positive for the US dollar, negative for the British pound, as most investors expect the Fed to reveal its bond reduction intentions at the November meeting.
Meanwhile, in the UK, the Bank of England will meet on September 23. At the last meeting, Michael Saunders voted to end the bank’s bond buying program, but most MPC members kept the pace unchanged.
Regarding an increase in interest rates, the Governor of the Bank of England, Andrew Bailey, commented that four of the eight members of the MPC thought that some initial conditions had been met to increase rates and explore the possibility of increasing rates of interest. However, this seems remote for investors, as the market expects a rate hike by 2022.
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