The pound slipped to a three-week low on Monday after Bank of England governor Andrew Bailey signalled the central bank could make more substantial interest rate cuts if the labour market weakens further.
Sterling fell 0.2% to $1.3467 in morning trading, its lowest level since 23 June, as investors digested Bailey’s remarks that “slack” was beginning to open up in the UK economy. The pound was flat against the euro at €1.1541.
Bailey told The Times: “I really do believe the path is downward” for interest rates.
Bank rate is currently 4.25%, following four quarter-point cuts in the last year, with the Bank next scheduled to set rates on 7 August.
Bailey added: “If we saw the slack opening up much more quickly, that would lead us to a different conclusion.
“I think the path [for interest rates] is down. I really do believe the path is downward but we continue to use the words ‘gradual and careful’ because … some people say to me, ‘Why are you cutting when inflation’s above target?'”
Read more: FTSE 100 LIVE: FTSE up and European markets dip amid fresh Trump tariff threats
Bailey’s comments come amid increasing market speculation that slowing wage growth and moderating inflation could give the central bank scope to accelerate its easing cycle.
The US dollar index (DX-Y.NYB), which tracks the greenback’s value against six major currencies, was muted at 97.88 at the time of writing.
In other currency moves, the pound was flat against the euro, trading at €1.1541 at the time of writing.
Oil prices edged higher on Monday, building on gains of more than 2% from the previous session, as traders weighed the prospect of further US sanctions on Russia against signs of increased Saudi production and renewed global trade tensions.
Brent crude (BZ=F) climbed 0.8% to trade at $70.92 a barrel, while West Texas Intermediate (CL=F) gained a bit over 1% to $69.21.
Prices found support from signs that Washington may tighten pressure on Moscow over its war in Ukraine. US president Donald Trump on Sunday pledged to send Patriot air defence systems to Ukraine, amid intensifying Russian bombardment of urban areas. He is expected to make a “major statement” on Russia on Monday.
Trump has grown increasingly frustrated with Russian president Vladimir Putin over the lack of progress in peace talks and the continuing escalation of attacks on Ukrainian cities.
Read more: Chinese EVs take off in the UK as BYD closes in on Tesla
A bipartisan bill in Congress aimed at imposing further sanctions on Russia gained traction last week but has yet to secure Trump’s full backing. The measure is seen as an attempt to bring Moscow to the negotiating table in good faith.
