Pound Sterling slips to $1.27 on bets for a slower pace of rate hikes by BoE

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Vrasidas Neofytou
Head of Investment Research

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Pound Sterling slips to $1.27 on bets for a slower pace of rate hikes by BoE

The Pound Sterling slipped to nearly $1.27 per dollar on Monday morning, extending last week’s steep losses as the Bank of England (BOE) moves closer to wrapping up its tightening cycle, coupled with the recovering U.S. dollar, and a gloomy outlook for the UK economy.

The GBP/USD pair fell as low as $1.2620 on last Thursday’s trading session, well below its yearly high of $1.3150 hit in mid-July, or down 4%, as forex traders were pricing in the return of Bank of England to a slower pace of interest rate hikes.

Bank of England’s interest rates

On Thursday, the Bank of England (BoE) hiked UK interest rates by 0.25% to a 15-year-high of 5%-to-5.25%, a downshift from the 0.5% hike delivered in June. https://www.investing.com/economic-calendar/interest-rate-decision-170

That was the 14th rate hike since late 2021, with BoE taking the key rate from 0.1% to 5.25% last week to fight against the 40-year record high inflation.

Policymakers decided to deliver a smaller rate hike based on the recent data showing easing inflation pressures in the UK, falling at 7.9% in June, well below expectations of around 8.2%. https://www.investing.com/economic-calendar/cpi-67

However, the policy committee left the door open for more rate hikes ahead -possibly a further 25 bps in September- and warned that rates will remain high over an extended period, as long as inflation remains well above BoE’s 2% target rate.

UK Consumer Price Index (CPI) -inflation rate

British inflation hit a 41-year high of 11.1% in October 2022 and has fallen more slowly than elsewhere, standing at 7.9% in June, the highest of any major economy.

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