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Sterling has rebounded, climbing 0.4% to $1.2579 after a recent downturn, buoyed by the US dollar's dip following Scott Bessent's appointment as Treasury Secretary.

What does this mean?

The British pound bounced back after hitting six-month lows due to weak British business output and retail sales data. The dollar's decline - prompted by financial markets reacting to Scott Bessent's Treasury role - eased concerns over stringent tariffs and deficits, benefiting currency pairs like sterling. The Bank of England (BoE) remains cautious, hinting at gradual rate cuts as the Deputy Governor warns of inflation risks. After two cuts since August, lowering rates to 4.75%, the BoE is projected to reduce another 70 basis points by the end of 2025. While the European Central Bank (ECB) is expected to cut 150 basis points, the BoE maintains a more measured approach.

The dollar index dipped to 106.94, with Bessent's nomination potentially leading to better tariff and deficit management, slightly reducing the dollar's allure. Sterling's recovery against the dollar and its drop to 83.37 pence per euro reflect ongoing shifts as investors consider US election influences and BoE's cautious policy. The combination of a weaker dollar and strategic BoE moves could boost market confidence in the pound.

The bigger picture: Spotlight on global inflation trends.

As sterling stabilizes, focus shifts to upcoming US and eurozone inflation data and BoE member statements. This is part of a broader review of how major economies handle rate cuts amid mixed economic signals. With limited UK data this week, Goldman Sachs forecasts potential sterling strength against the euro and currencies like the Swedish krona, suggesting the UK's potential to outpace Eurozone growth amidst varying US tariff impacts.