Pound Sterling Boosted by Bailey's Coy Stance on Rate Cuts

Above: File image of Governor of the Bank of England Andrew Bailey. Image: IMF Photo/Cory Hancock. Licensing: CC 2.0.

The British Pound is higher against the Euro and Dollar ahead of the weekend, aided in part by the Governor of the Bank of England.

Andrew Bailey delivered a speech at the Jackson Hole Symposium, where he was careful not to fan market expectations about the prospect of a rapid succession of interest rate cuts from the Bank.

He said it is "too early to declare victory" over inflation, verifying market expectations that it would skip another rate cut in September.

This is in stark contrast to his colleague at the Federal Reserve, Jerome Powell, who used his address at the Symposium to confirm a rate cut in September.

The divergent tones were reflected in a rallying Pound to Dollar exchange rate, which reached a new two-year high at 1.32. Bailey's decision to play it cool also helped other Sterling exchange rates move higher, with the Pound to Euro pair rising to 1.18.

There was the possibility that Bailey would use his speech to signal a growing confidence about the prospect of further hikes, given Powell's all-clear message. (Often in the past, the Fed has had a steer on Bank of England policy and the odds of aggressive rate cuts).

But Bailey appears content to stick with the Bank's previous message that it will approach cuts with caution given its expectation that inflation will tick higher into the year-end.

"Core inflation in the UK remains much more persistent than in other G10 countries," says Michael Pfister, FX Analyst at Commerzbank. "We continue to believe that sterling should outperform the euro for the time being."

Investment bank consensus forecasts update: The end-2024 and 2025 guide from Corpay has been released. It shows a sizeable uplift was made to the consensus forecasts for GBP/EUR. Please request a copy here.