Pound Slips as Dollar Strengthens Amid Economic Shifts

The pound declined against the dollar as investors focused on the robust U.S. economy, pushing the dollar up. U.S. retail sales exceeded expectations, bolstering the dollar, while UK inflation fell, increasing speculations of UK rate cuts. Key focus is now on BoE Governor Andrew Bailey's upcoming speech.

On Monday, the pound experienced a decline as investor sentiment shifted towards the strong performance of the U.S. economy, prompting a rise in the dollar. Trading at $1.3023, the pound was just above a recent two-month low of $1.2975.

Against the euro, sterling gained with the euro ascending 0.1% at 83.35 pence, though the euro remains near its lowest in over two years relative to Britain's currency. The dollar has strengthened across the board, buoyed by unexpectedly strong U.S. economic data.

Last week's U.S. retail sales surged more than anticipated, alongside a drop in jobless claims, which tempered bets on Federal Reserve rate cuts and elevated Treasury yields. Conversely, UK inflation fell sharply to 1.7% in September, stoking expectations for deeper rate cuts from the Bank of England.

In an unusual turn, British 10-year bond yields dipped below U.S. yields for the first time since August, increasing the appeal of U.S. bonds and amplifying dollar strength. This week, market attention pivots to Bank of England Governor Andrew Bailey, who is set to speak, as well as upcoming purchasing managers' index data.

Globally, market analysts like Chris Turner of ING suggest markets may be undervaluing the Bank of England's potential easing moves. Turner's focus also lies on upcoming UK PMI figures to assess whether sterling can maintain recent gains against the euro.

(With inputs from agencies.)