Sterling Surges to 4-Month High on BoE Comments and Strong GDP Data

The British pound reached a four-month high on Thursday, boosted by hawkish remarks from Bank of England policymakers and better-than-expected GDP figures. These developments prompted traders to reassess their expectations for an August rate cut, shifting focus towards upcoming U.S. inflation data.

Key Points:

• Sterling Strength: The pound gained 0.25%, reaching $1.2881, its strongest level since early March.
• BoE Comments and GDP Data: Hawkish comments from BoE chief economist Huw Pill, highlighting persistent price pressures, and a stronger-than-forecast GDP growth of 0.4% in May, contributed to the pound’s rise.
• Reduced Rate Cut Bets: Market expectations for a Bank of England rate cut in August have diminished, with futures markets now pricing in a roughly 45% chance of such an event.
• Euro and Dollar: The pound also strengthened against the euro, reaching its highest level in a month. Meanwhile, the euro rose 0.17% against the dollar to $1.0849.
• Focus on U.S. Inflation Data: The main event for currency markets this week is the release of U.S. inflation data, which will either confirm or challenge market expectations of a potential Federal Reserve rate cut in September.
• Powell’s Comments: Fed Chair Jerome Powell emphasized that interest rate decisions will be made “when and as” needed, pushing back against suggestions of a politically motivated rate cut in September.
• Norwegian Crown Weakens: The Norwegian crown continued to weaken after lower-than-expected core inflation figures, with the euro reaching a two-month high against the crown.
• New Zealand Dollar Stabilizes: The New Zealand dollar recovered slightly after falling in the previous session due to the Reserve Bank of New Zealand’s dovish stance on monetary policy.
• Yen Remains Pressured: The yen remained under pressure due to significant interest rate differentials between the United States and Japan, hovering near a 38-year low against the dollar.
• Japanese Banks Urge BOJ Tapering: Several Japanese private banks have called on the Bank of Japan (BOJ) to reduce its monthly bond purchases by around 2026. The BOJ is expected to outline a plan for tapering its extensive bond-buying program at its meeting on July 30-31.

Overall, the pound’s strong performance reflects a shift in market sentiment regarding the likelihood of a rate cut by the Bank of England. The focus now turns to the upcoming U.S. inflation data, which will provide crucial insights into the Federal Reserve’s monetary policy decisions.