Sterling rose in European trade on Friday against a basket of major rivals, extending gains for the third straight session against the dollar and hitting 30-month highs, and about to mark the largest weekly profit in a month after strong UK data. The data confirmed the flexibility of the UK economy, and in turn reduced the odds of a November Bank of England rate cut in November. The BOE decided to maintain interest rates unchanged on Thursday as expected, asserting the need for more evidence before any rata cuts.
The Price
The GBP/USD pair rose 0.4% today to $1.3340, the highest since March 22, with a session-low at $1.3273. The pair closed up 0.55% yesterday, the second profit in a row following the BOE’s policy decisions.
Weekly Trades
Sterling is up 1.6% so far against the dollar this week, about to mark the largest weekly profit since mid-August. Sterling is now the best performing G8 currency in 2024 due to expectations of high UK interest rates for an extended duration.
Strong Data.
Recent data showed UK retail sales rose 1% in August, beating estimates of 0.3%. The data, in addition to positive GDP growth data for the second quarter, underlines the resilience of the UK economy.
UK Rates
Following the aforementioned data, the odds of a November BOE rate cut fell to less than 30%, with a 40% chance of a rate cut in December.
The BOE
The Bank of England voted to maintain interest rates unchanged at 5%, and said it’s important to be cautious and not rush into interest rate cuts. The decision was voted upon with a 8-1 majority. The BOE cut interest rates at the August meeting, in what was the first rate cut since 2020.
Bailey
BOE Governor Andrew Bailey said the central bank needs to see more evidence and supportive signs before taking the decision to cut interest rates. He expressed optimism that inflation is receding clearly in the country, which would eventually pave the path for policy easing.
The Interest Rate
Gap The US-UK interest rate gap vanished this week after the Federal Reserve cut interest rates by 50 basis points. The gap could reform once again this year in favor of the UK if the Fed went ahead with more aggressive rate cuts compared to the Bank of England.
