The British pound gains 0.5% against the dollar, ahead of key UK inflation data and a Bank of England meeting expected to maintain interest rates. Market sentiment shifts towards rate cuts.
Bollywoodfever: The British pound rose against the dollar on Monday, bouncing back after ending last week slightly lower, as markets turned their focus to this week’s UK inflation data and an upcoming Bank of England (BoE) meeting.
Sterling increased by 0.5%, reaching $1.3190, up from $1.3125 at Friday’s close. Niels Christensen, chief analyst at Nordea, noted that the pound “is holding up quite well,” with the expectation that the BoE may be “a little bit less aggressive” on rate cuts due to a predicted rise in core inflation.
The BoE is anticipated to keep interest rates unchanged this week after reducing them by 25 basis points last month. However, futures markets showed increased speculation of another 25-basis-point rate cut, with the chances rising to 38% from 20% on Friday.
Inflation data, set to be released on Wednesday, will play a pivotal role in the BoE’s decision-making, especially after the Office for National Statistics revealed last week that the UK economy unexpectedly stagnated in July.
Volkmar Baur, an FX strategist at Commerzbank, commented that the expected rise in core inflation “is one of the reasons why we do not expect a change in the key rate.” He added that if inflation does not increase as predicted, the BoE’s decision could be complicated by the recent weaker economic data.
While the pound remained flat against the euro at 84.35 pence, the dollar weakened, and the yen hit its highest level in over a year, as markets increasingly anticipated a large rate cut by the U.S. Federal Reserve later this week.
The market’s attention will remain on inflation figures and central bank decisions, as both the BoE and the Federal Reserve weigh economic data and inflation trends in their next policy moves.
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