The pound was virtually unchanged on Monday (September 8th), after posting its biggest one-day rally against the dollar in two weeks on Friday, following surprisingly weak US jobs data that had reinforced expectations of a US interest rate cut this month.

The pound was last unchanged on the day at $1.3513, having strengthened 0.5% on Friday, when the dollar came under heavy pressure following the August nonfarm payrolls report showing just 22,000 jobs created last month and far fewer in previous months.

Traders are fully pricing in a quarter-point interest rate cut from the Federal Reserve when it meets next week and similar cuts are likely in October and December.

The Bank of England, which also meets next week, is expected to deliver almost no rate cuts for the rest of the year, given that UK inflation remains well above the central bank's 2% target and the economy is slowing, but with no signs of a more serious weakening. This divergence creates a theoretical advantage for the pound sterling and UK assets in general, as investors would benefit from higher UK interest rates compared to other countries.

Poland shrugged off UK Prime Minister Keir Starmer's cabinet reshuffle on Friday following the resignation of his deputy, which did not affect Chancellor Rachel Reeves. The pound sterling also held steady against the euro, trading at 86.8 pence.

"There is no significant data from the UK this week and only a few keynote speakers from the Bank of England. We expect euro/pound sterling to trade in the 86.50-87.00 range this week, given that next week's BoE meeting and news on quantitative easing plans will be of much greater interest," strategists at ING said in a note.

Against the Japanese yen, the pound sterling strengthened to a one-month high above 200 after Japanese Prime Minister Shigeru Ishiba announced his resignation on Sunday. Ishiba said he took responsibility for the defeat of his Liberal Democratic Party in the general election earlier this year. (alg)

Source: Reuters