The British Pound started last week on firm footing against the US Dollar after last week’s shift in interest rate expectations on both sides of the Atlantic. While the Bank of England’s cautious stance tempered near-term cut expectations, pressure on the US Federal Reserve to ease policy has intensified, lifting GBP/USD to multi-day highs.
Pound to Dollar (GBP/USD) - Key Market Drivers
GBP/USD holds near 10-day highs as UK rate cut bets ease
BoE’s narrow 5-4 vote and cautious inflation stance support Pound
Trump’s Fed nominee Stephen Miran adds to US rate cut speculation
The British Pound continues to draw net support from Thursday’s Bank of England (BoE) policy decision, while the dollar remains fragile in global markets.
Traders are now less certain over the scale and timing of further BoE rate cuts, while pressure on the Fed to cut rates has strengthened.
The Pound to Dollar (GBP/USD) exchange rate hit 10-day highs just above 1.3450 late last week before settling just below this level.
According to ING; “Cable remains more appealing, and a move above 1.35 is very possible at this stage.”
UoB added; “Strong momentum suggests further GBP strength, even though the major resistance at 1.3515 is likely out of reach for now.”
Scotiabank commented; “Steady pressure on the 1.3450 zone overnight has failed to yield additional gains and, despite solidly-bullish short-term trend momentum, the GBP’s path higher may be blocked for now. Minor dips to the upper 1.33/low 1.34 zone should remain well supported, however.”
The Pound remains underpinned by the narrow 5-4 Bank of England vote to cut interest rates and cautious commentary on inflation.
Standard Chartered commented; “What was clear from today’s meeting was a pervasive sense of uncertainty – not just arising from divergent economic data, but also about the appropriate pace of easing and where the neutral rate lies."
The bank still expects another rate cut this year; "We continue to expect another rate cut in Q4. We slightly favour November over December, but it has become a closer call between those two meetings.”
Danske Bank continues to forecast that rates will fall steadily to 2.75% by the end of 2026, but noted; “We think the risk is that the cutting cycle will come to an end earlier than previously thought, which is also what markets price. That said, recent increasingly negative employment growth and lower wage growth suggest further cuts will be necessary.”
US developments also remain a key driver.
President Trump’s nomination of Stephen Miran to fill the vacant FOMC seat until the end of January reinforces expectations for a more dovish tilt.
Miran has argued that interest rates are too high, with expectations that he will push aggressively for cuts.
National Australia Bank head of FX strategy Ray Attrill commented; "It locks in a vote for rate cuts at all the meetings between now and the end of January."
He will, however, still need Senate confirmation.
Attrill added; "Markets are already travelling with a very strong expectation that there will be a rate cut. Though there's a question mark over whether he'll succeed in ratification in time for the September meeting."
Joseph Capurso, head of international economics at the Commonwealth Bank of Australia, played down the impact; "While we expect Miran to advocate for lower interest rates, we do not consider he will push the FOMC to cut the Funds rate if the data does not support a cut."
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