The British pound has recently strengthened, reaching its highest level since early July, amidst anticipation of key central bank decisions from both the Bank of England and the US Federal Reserve, and crucial UK economic data releases. Market participants are closely watching upcoming inflation figures, retail sales data, and the Bank of England’s monetary policy announcement. The expectation is that the Bank of England will hold interest rates steady while moderating its bond unwind program, while the US Federal Reserve is anticipated to cut rates.
- The British pound rose past $1.363, the highest since early July.
- The Bank of England is expected to hold rates at 4% on Thursday.
- The Bank of England is slowing its £100 billion annual bond unwind.
- UK inflation for August is forecast at 3.8% y/y.
- Latest UK jobs data showed wage growth excluding bonuses at 4.8% and 4.7% including bonuses.
- Unemployment remained steady at 4.7%.
- Payrolls were down 8,000.
- Markets see only a one-in-three chance of a BoE rate cut by December.
- The US Federal Reserve is widely expected to deliver a 25 bp rate cut on Wednesday.
- Traders are pricing in at least two more rate reductions by the end of 2025 by the US Federal Reserve.
The current environment suggests a cautiously optimistic outlook for the British pound. While the UK labor market is showing signs of cooling, the anticipation of stable interest rates from the Bank of England and potentially aggressive rate cuts by the US Federal Reserve are creating a favorable scenario for the pound. Upcoming economic data releases will be crucial in shaping market expectations and influencing the currency’s future trajectory.