Following the Bank of England’s decision to maintain interest rates, the pound surged to its strongest level in two years.
- The pound increased by 0.7 per cent against the dollar, reaching $1.331, and by 0.3 per cent against the euro, marking significant currency strengthening.
- The rise was influenced by the US Federal Reserve’s unexpected half-point rate cut, making UK investments more attractive.
- Market expectations include one last rate cut by the Bank of England in November, potentially pushing the pound to $1.35.
- Economic forecasts suggest possible short-term pound weaknesses as UK interest rates could be reduced more aggressively in the future.
The pound’s value has significantly strengthened, reaching a two-year high following the Bank of England’s decision to hold interest rates steady. It advanced by 0.7 per cent against the dollar, hitting $1.331, and by 0.3 per cent against the euro, achieving its strongest level since July.
This increase in the pound’s value was largely due to the US Federal Reserve’s decision to cut rates by half a point, which was more than many market analysts had anticipated. Such reductions can make the UK investments more appealing to investors seeking better returns, thereby bolstering the pound.
Market insiders suggest that the Bank of England may perform one more rate cut in November. This prospect, combined with other factors, could see the pound reach as high as $1.35, a level not seen since January 2022.
Despite inflation falling to 2.2 per cent, near the Bank of England’s 2 per cent target, the Monetary Policy Committee has indicated the removal of policy restraints gradually, forecasting inflation might rise to 2.5 per cent by the end of the year.
While financial markets reacted positively, with both FTSE 100 and FTSE 250 indices rallying, some experts, including HSBC’s senior FX strategist Nick Andrews, warn that sterling’s gains might be short-lived. He cautioned that if the UK economy weakens relative to the US, further aggressive cuts in UK interest rates might depress the pound’s value.
The pound’s recent high reflects current monetary strategies, yet its future strength remains uncertain amidst economic challenges.
