Sterling has clawed back a bit of ground following the latest Bank of England interest rate meeting.
As widely expected, they cut rates by 0.25%. However, the voting pattern surprised markets with a more hawkish tilt. While general expectations were for a 7-2 split in favour of a cut, the actual vote ended up coming in much closer with just five members in favour of a cut and four preferring to keep rates on hold. This narrow margin suggests that the BoE appear to be more concerned about persistent inflation than the weakness in the broader economy and UK labour market. They also reiterated that further cuts need to be “gradual and careful”. As a result, the Pound has erased some of its recent losses.
In other news, the USD was heavily sold off after Friday’s poor non-farm payroll figures. Not only does the data suggest that American businesses are holding off on hiring due to tariff-related uncertainty, but that the Fed will probably have no choice but to lower rates as soon as their next policy meeting in mid-September. This is quite a shift in narrative from this time last week where a rosier picture was being painted of the US economy. Upcoming US economic data releases will therefore be closely scrutinised as the market remain sensitive to which direction the Fed are moving.
As a result, the GBP/EUR rate has risen nearly 1-cent today and currently trades at 6-day high. The GBP/USD is up 0.5% today and over 2% higher from the start of the month (currently sitting at 11-day high).
