The pound has made a slight recovery this morning, trading at $1.3172, after suffering a sharp decline of over 1% yesterday. This drop followed comments from Bank of England Governor Andrew Bailey, who hinted that more aggressive interest rate cuts could be forthcoming.
In contrast, Bank of England Chief Economist Huw Pill’s call for a more cautious approach to rate reductions has provided a boost to sterling today. However, despite this morning’s uptick, the pound is on track for its worst weekly decline in more than a year. Bailey’s assertion that the BoE might adopt a “bit more activist” stance in lowering rates unsettled investors, prompting an unwinding of long positions in the currency.
So far this year, the pound has appreciated about 3.4%, outpacing other G10 currencies as market expectations leaned towards the BoE maintaining higher rates longer than its global counterparts. Yet, analysts caution that further position squaring could continue to pressure sterling unless upcoming communications from the BoE or economic data prompt a more hawkish recalibration.
Looking ahead, there’s speculation that the pound could dip to $1.30 in the coming weeks, especially with the dollar remaining flat against a basket of major currencies. Market attention is now focused on the crucial U.S. payrolls report, due later today, which is anticipated to shed light on the state of the U.S. economy and influence the Federal Reserve’s approach to the ongoing rate-cut cycle.
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