Monthly Wrap: GBP – Pound rocked by shifting BoE rate cut bets
Currencies Direct August 7th 2024 - 2 minute read
Key takeaways:
- Pound strikes multi-month highs after investors bets against August rate cut
- Eventual cut quickly brings Sterling crashing back to earth
- GBP monthly lows: €1.16, $1.27, AU$1.89, NZ$2.08, C$1.74
- GBP monthly highs: €1.19, $1.30, AU$1.99, NZ$2.19, C$1.78
Trade in the pound has been highly erratic over the past month, with GBP exchange rates climbing to multi-month highs before almost immediately erasing these gains.
Sterling sentiment was initially buoyed in July by a sense of optimism as Labour emerged from the UK general election with a massive majority.
The upswing in Sterling then accelerated in the following weeks as GBP investors began to trim their bets for an August interest rate cut from the Bank of England (BoE).
This was initially driven by comments from BoE Chief Economist Huw Pill expressing concern about ‘uncomfortable strength’ in services price inflation, before being cemented by a stronger-than-expected UK consumer price index, which catapulted GBP/USD to a one-year high and GBP/EUR to a 23-month high.
However, the pound was unable to sustain these gains for long, as slowing UK wage growth and a contraction in retail sales quickly revived BoE rate cut bets.
In the end the BoE ultimately opted to cut interest rates in the wake of its latest policy meeting at the start of August, triggering a sharp depreciation of the pound.
Further losses then followed amid the rout in global markets, which stoked bets the BoE will deliver at least two more rate cuts this year.
Looking ahead, a key focus in the coming weeks will be the UK’s preliminary GDP figures for the second quarter of 2024. Following a stronger-than-expected expansion of growth in Q1, GBP investors will be hoping for another robust reading in the second quarter.
GBP investors will also be paying close attention to the UK’s latest CPI figures. If inflation continues to outpace expectations it could weaken bets on further BoE rate cuts and help to lift the pound.
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Currencies Direct