The pound fell in the European market on Wednesday against a basket of global currencies, giving up a 29-month high against the US dollar, due to corrections and profit-taking activity.
The British currency entered a strong wave of gains after the recent comments of Bank of England Governor Andrew Bailey at the Jackson Hole Economic Forum, which came in more aggressive than expected.
Those comments have reduced the likelihood that the Bank of England will cut British interest rates in September, which is expected to reduce the interest rate gap between Britain and the United States.
Price overview
The exchange rate of the British pound today: The pound fell against the dollar by 0.3% to (1.3217 dollars), from the opening price of trading at (1.3258 dollars), and recorded the highest level today at (1.3264 dollars).
The pound ended Tuesday’s trading up 0.55% against the dollar, and hit a 29-month high of $1.3266, thanks to purchases of the British currency as the best available investment.
Bank of England Governor Andrew Bailey said Friday in Jackson Hole that it was too early to declare victory over inflation in the country, reinforcing market expectations about the difficulty of cutting British interest rates in September.
Bailey’s comments came in stark contrast to his Fed colleague Jerome Powell, who used his speech at the forum to confirm a rate cut in September.
Bailey appears content to stick to the bank’s previous message that it will handle the cuts cautiously given its expectation that inflation will rise higher at the end of the year.
Following the above comments, UK interest rate swaps showed a chance of around 30% of the Bank of England’s rate cut in September, and swaps also show a less than 50% chance of cutting UK interest rates in November.
In order to reassess these swaps, investors are awaiting the release of many important economic data in the United Kingdom on unemployment, growth and inflation.
American interest
Federal Reserve Chairman Jerome Powell said: “It’s time to adjust monetary policy. Powell added: “My confidence has increased that inflation is on a sustainable path to return to the target of 2%.
Following Powell’s comments, according to CME Group’s FeedWatch: the pricing of US interest rate cut prospects rose by about 50 basis points at the September meeting from 25% to 38%, and the pricing of cut prospects fell by about 25 basis points from 75% to 62%.
According to interest rate futures, markets are currently pricing for cuts of about 100 basis points in U.S. interest rates before the end of this year.
Interest rate gap
The current gap in interest rates between the UK and the US at 50 basis points in favor of US interest rates as the highest gap since May 2023, and in light of the above possibilities, the gap is expected to narrow to at least 25 basis points next September, which enhances investment opportunities in GBP/USD.
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