The British pound edged slightly lower during Tuesday’s trading session after data revealed a slowdown in wage growth in the UK over the three months ending in August. This supports the view that the Bank of England will continue its cautious approach toward gradually cutting interest rates. The pound fell 0.35% against the US dollar, trading at $1.3293, retreating from modest gains recorded earlier in the day before the release of the labor market data.
Conversely, the euro rose 0.36% against the pound to reach 87.09 pence, heading toward its biggest daily gain against the British currency in nearly a month. The latest wage figures indicate that inflationary pressures in the UK labor market have begun to ease, giving the central bank more room to continue its monetary easing cycle at a measured pace, avoiding any disruption to price stability or sharp volatility in the currency.
As for the US dollar, it witnessed its strongest wave of investment demand since the beginning of the year last week, according to data released Monday by Bank of America an indication of renewed confidence in the greenback amid global market turmoil. The institution noted that the moves were driven by hedge funds and asset managers, as a mix of political and economic developments in Japan and France prompted investors to cover their short positions on the dollar in anticipation of sudden volatility in the currency market.
Hedge funds have been aggressively buying the dollar against the Japanese yen, the Australian dollar, and emerging market currencies, while asset managers focused on strengthening their long positions against the euro. The data also showed continued support for the dollar in options markets, particularly against the euro and emerging market currencies, confirming a broadening demand for the US currency across multiple markets.
Bank of America analysts believe the dollar could have posted even greater gains in recent weeks if not for selling flows from corporations and official entities, which helped moderate the pace of the currency’s rise. However, these flows did not weaken the strong momentum the dollar has built up in recent weeks. This shift reflects growing bets on the relative outperformance of the US economy in a global environment marked by slowing growth, as investors await any new signals from the Federal Reserve that could determine the next direction of the currency.
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