Sterling has been rattled by the dovish comments from the Bank of England governor Andrew Bailey in today’s interview with the Guardian, says Kathleen Brooks, research director at XTB.

Brooks points out that the dollar has also been benefitting from ‘safe haven flows’, as nervous investors try to protect their money due to the Middle East crisis.

She says it’s been a ‘bruising week’ for the pound, which may have further to fall against the dollar.

In a note headlined “Andrew Bailey sinks the pound”, Brooks explains:

The pound was already selling off before Bailey’s comments, and GBP/USD is down more than 1% so far this week, it is down from $1.34 at the start of this week to below $1.31 this morning.

It has found decent support at $1.3170, however, this has been a bruising week for the pound, and $1.35 seems like a mountain to climb from here. Part of the pound’s sell off is due to external factors. As geopolitical risks in the Middle East have risen, the US dollar has caught a bid. The currencies that were most extended vs. the US dollar have sold off rapidly, as investors have sought the safety of the dollar.

Hence, the pound and the yen were in the sellers’ sights, as the markets scrambled to buy dollars. The pound is still the best performing currency in the G10 FX space so far this year, thus, if tensions escalate further, then we could see another leg lower for GBP/USD [the pound against the dollar].

Tesco lifts profit forecast

Sarah Butler

Supermarket chain Tesco has announced it now expected to make profit of £2.9bn for the year, up from £2.8bn previously predicted.

Tesco says it will make £100m more than expected after it grabbed share from rivals by cutting prices, put more staff on the shop floor and used AI to target ranges to local tastes.

The UK’s biggest supermarket said it had made £260m of cost savings in the six months to 24 August and had also benefited from restructuring its bank and shoppers trading up to higher priced products as the cost of living crisis has eased.

The retailer said 20 million more people had bought its Finest premium own-label range.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The pound has dropped to a two-week low this morning, after the Bank of England governor told the Guardian that the central bank could become a “bit more aggressive” in cutting interest rates provided the news on inflation continued to be good.

Andrew Bailey told us that he has been encouraged by the fact that cost of living pressures had not been as persistent as the Bank thought they might be.

In an interview with my colleague Larry Elliott, Bailey says that if the news on inflation continued to be good there was a chance of the Bank becoming more “a bit more activist” in its approach to cutting interest rates, now at 5%.

This has knocked the pound, which is down 0.8 of a cent to $1.3185, its lowest level since 19 September (just before the Fed’s rate cut).

The Bank had recently sounded more cautious about rate cuts than its counterparts in the US and the eurozone. It has only made one quarter-point cut this year, in August, while the Federal Reserve has cut US rates by half a point, and the European Central Bank has made two quarter-point cuts since June.

The Bank is next scheduled to set interest rates in early November; the money markets suggest there’s an 88% chance of a cut, to 4.75%.

Bailey made the comments in a wide-ranging inteview, in which he explained he was watching developments in the Middle East “extremely closely”.

Bailey told us:

“Geopolitical concerns are very serious,.

It’s tragic what’s going on. There are obviously stresses and the real issue then is how they might interact with some still quite stretched markets in places.”

Bailey said that in the year since the Hamas attack on Israel there had not been a big rise in oil prices of the sort seen in the past.

He explained:

“From the point of view of monetary policy, it’s a big help we haven’t had to deal with a big increase in the oil price. But obviously we’ve had that experience in the past, and in the 1970s, the oil price was a big part of the story.

“Obviously, we keep watching it. We watch it extremely closely to see the impact of the latest news. But … my sense from all the conversations I have with counterparts in the region, is that there is, for the moment, a strong commitment to keep the market stable.

Here’s the full interview:

The agenda

• 9am BST: Eurozone services PMI index for September

• 9,30am BST: UK services PMI index for September

• 10am BST: Eurozone producer prices index for August

• 12.30pm BST: Challenger survey of US job cuts for September

• 1.30pm BST: US weekly jobless claims report