By Rae Wee
SINGAPORE (Reuters) -Sterling rose to an over two-month high against a weakening dollar on Monday, though some risk-aversion capped losses on the greenback as traders eyed fresh economic cues in the week ahead to determine the future path of policy rates.
A postponed OPEC+ meeting, data from the Federal Reserve’s favoured measure of inflation alongside inflation readings in the euro zone and Australia fill this week’s calendar, which will also see a rate decision from the Reserve Bank of New Zealand and Chinese PMI data.
The British pound rose to a more than two-month high of $1.2620, extending its gains from last week following data showing that British companies unexpectedly reported a marginal return to growth in November after three months of contraction.
“That indicates the resilience of the UK economy despite the very aggressive monetary policy tightening from the Bank of England,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia. “But we still expect the UK economy to weaken and experience a short-lived recession.”
The pound was on track for a roughly 3.8% gain for the month, its largest monthly gain in a year.
Elsewhere, the dollar fell 0.32% to 148.97 yen, while the euro gained 0.2% to $1.0952.
The dollar index slipped 0.12% to 103.31 and was headed for a monthly loss of more than 3%, its worst performance in a year.
Traders, returning from the Thanksgiving lull late last week, continued to eye a peak in U.S. rates and turned their attention to when the first rate cuts could come, with this week’s release of U.S. core PCE prices likely to offer more clues on the Fed’s next steps.
“Insofar as CPI inflation rates across much of the G10 are still above central bank targets, there is a strong incentive for policymakers to support the ‘higher for longer’ theme since higher market rates will help in the battle against inflation,” said Jane Foley, senior FX strategist at Rabobank.
“Investors, however, are looking through this policy and appear increasingly pre-occupied about betting on the timing and pace of rate cuts next year.”
Market pricing shows a roughly 23% chance that the Fed may begin easing monetary policy as early as next March, according to the CME FedWatch tool.
The greenback, however, edged marginally higher against the Australian and New Zealand dollars, helped by a slight risk-off mood as investors stayed on guard ahead of risk events this week.
The Australian dollar, which earlier in the session climbed to a more than three-month high of $0.6595, gave up some of those losses over the course of the trading day and was last 0.03% lower at $0.6583.
The kiwi edged 0.13% lower to $0.6074.
In China, the yuan slipped after the official midpoint snapped five straight sessions of strengthening, with the onshore yuan last at 7.1550 per dollar.
Its offshore counterpart fell nearly 0.2% to 7.16 per dollar.
Profits at China’s industrial firms extended gains for a third month in October, albeit at a slower pace, data on Monday showed, suggesting more policy support from Beijing is needed to help shore up growth in the world’s second-largest economy.
(Reporting by Rae Wee; Editing by Gerry Doyle and Christopher Cushing)
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