The British pound experienced a decline, falling below $1.36 as market participants assessed new indications from the Bank of England (BoE). Despite holding rates steady, internal divisions and a slightly more dovish tone impacted the currency’s value. While economic growth showed some unexpected strength in Q2, the overall economic outlook remained subdued.
- The Bank of England maintained interest rates at 4% in a 7-2 vote.
- Swati Dhingra and Alan Taylor, known doves, voted for a rate cut.
- The BoE reiterated its “cautious and gradual” approach to easing monetary policy.
- Quantitative tightening was reduced from £100 billion to £70 billion annually, focusing on shorter-dated gilts.
- Inflation forecasts remained largely unchanged.
- Q2 growth surpassed expectations, but the economy is still considered weak.
- Market expectations shifted slightly, pricing in 45 bps of rate cuts by the end of 2026.
The performance of the pound is being influenced by a complex interplay of factors. A central bank balancing cautious easing with economic uncertainty creates a situation where the currency is sensitive to subtle shifts in policy and economic data. The modest adjustments in rate cut expectations indicate a market adapting to a landscape of gradual change, yet the currency’s vulnerability highlights the challenges faced by the central bank in managing economic stability.