Sterling rises against the dollar to its highest levels

What’s happening:-

 The British pound rose against the US dollar on Thursday, as investors digested the Bank of England’s latest interest rate decision.

What happened:-

 British bond yields climbed during the session, sending the GBP/USD forex pair to its strongest level in around two weeks.

Inflation concerns fuelled expectations of fewer interest rate cuts for the remainder of the year.

Why it matters:-

 The Bank of England announced an interest rate cut of 25 basis points (bps) on Thursday. The latest move lowered UK’s key Bank Rate to 4%, the lowest mark since 2023. This marked the central bank’s fifth rate cut since August 2024.

Sterling rises against the dollar

The latest decision came amid a division among policymakers, with the rate cut being approved by a 5-4 majority. The initial vote resulted in a split decision, and a second voting round was required to announce a final policy decision.

The BoE also increased its inflation projections for September from 3.7% to 4%. Due to this, investors pared back estimates of another rate cut in 2025. Lower speculations of the Bank of England’s monetary policy easing lend support to the sterling.

Sterling rises today

The latest data released showed that UK’s inflation surged to more than a one-year high of 3.6% in June, with services inflation remaining above the 4% level for over three years.

Yields on UK’s government bonds climbed, taking the 2-year yield to 3.88% on Thursday.

However, strength in the US dollar weighed on the GBP/USD forex pair. The US dollar index, which measures the greenback’s performance versus a basket of major peers, rose around 0.2% to 98.40 on Thursday.

The GBP/USD jumped to 1.3445 on Thursday, while the GPB/EUR rose to 0.8678.

What to watch:-

 Investors will continue monitoring UK’s inflation level and rate-related comments from the BoE’s policymakers.

Sterling rises

Data on unemployment rate, average earnings and employment change, due to be released on Tuesday, will also remain in focus. The UK’s unemployment rate, which rose to 4.7% in the three months to May, is expected to climb further to 4.8% in June.

Average weekly earnings, including bonuses, are projected to surge by 5% year-over-year. The number of employed people in the UK, which climbed by 134,000 in the three months to May, is expected to rise by 65,000 in June.