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The Bank of England raised rates to 5.25%, causing a one-month low in the GBP/USD pair. The decision was based on a split vote, with two members expecting a 50-bps rate hike.
US Initial Jobless Claims were in line with estimates, and the ISM’s business services activity reading was 52.7, indicating a potential slowdown in the economy. The GBP/USD reacted positively, trading at 1.2705, with minimal losses of 0.04%. The UK Bank Rates are expected to peak around 5.75%, with two additional rate increases expected towards the end of the year.
The ISM’s business services activity remains expansionary at 52.7, below forecasts of 53 and trailing June’s 53.9. The greenback weakened as the GBP/USD gained some traction, trading back above 1.2700. The US Nonfarm Payrolls report for July is expected to provide a comprehensive assessment of the labor market, potentially leading to discussions about implementing further interest rate hikes by the Fed.
If the results fall short of expectations, the Fed might adopt a cautious approach in preparation for the September monetary policy meeting. Richmond’s Federal Reserve President, Thomas Barkin, expressed concern over high inflation levels, stating that the previous month’s inflation reading was favorable and hoped it indicates a positive direction in managing inflationary pressures.
