Sterling Hits Two-Year High Amid Rate Cut Speculation
Sterling's Ascent Explained
Sterling rose to its highest level against the dollar since March 2022 on Tuesday as investors prepare for the Federal Reserve to start lowering rates more quickly than the UK’s central bank.
The pound rose as much as 0.4 percent against the greenback to $1.3246 due to differing outlooks from Federal Reserve chair Jay Powell and Bank of England governor Andrew Bailey at a global summit of central bankers.
Diverging News from Central Bank Leaders
Powell indicated that the “time has come” for U.S. rate cuts, contrasting with Bailey's warning that it was “too early to declare victory over inflation.” This clear distinction is influencing market perceptions of the pound’s resilience.
According to Kyle Chapman, an FX analyst at Ballinger Group, “The stark contrast between Powell’s rate cut greenlight and Bailey’s caution summarizes what drives the pound’s strength.”
The outlook suggests that investors expect the Fed to implement seven or eight quarter-point cuts by the end of the year, with uncertainty about the magnitude of the first cut next month.
The BoE made its first rate cut in over four years earlier this month, yet market sentiment indicates only four more cuts anticipated by mid-next year.
This article was prepared using information from open sources in accordance with the principles of Ethical Policy. The editorial team is not responsible for absolute accuracy, as it relies on data from the sources referenced.