Askume, Sept 19 – The pound weakened against the dollar after the Federal Reserve cut interest rates by 50 basis points as investors await the outcome of Thursday’s Bank of England policy meeting, where borrowing costs are expected to remain in check.
Just after the Federal Reserve announced the news on Wednesday, the pound briefly hit $1.3297, its highest level since March 2022. It was last up 0.35% at $1.3257.
Sterling rose on Wednesday as data showed UK inflation remained steady in August but the services sector, which the Bank of England closely monitors, rose to 5.6% from 5.2% in July.
On Thursday, money markets saw a 20% chance that the Bank of England would cut interest rates by 25 basis points, while the probability of a rate cut was about 28% immediately after the inflation data was released .
The Bank of England will keep its key interest rate at 5.00% but will cut it in November, even though most economists in a Askume survey expected inflation to remain above the central bank’s 2% target .
UBS currency strategist Elvis Marino said: “We don’t expect any changes at the Bank of England or Bank of Japan policy meetings, but we think the Bank of England’s decision to exit strategic sterling has increased dovish risk.
Sterling rose 0.05% against the euro to 84.12 pence.
With the autumn budget to be announced on October 30, the Bank of England’s Monetary Policy Committee will have more information on the fiscal outlook, analysts said.
Matthew Ryan, head of market strategy at global financial services firm Ebury, said: “Any hint of a reversal in November is unlikely to cause the pound to fall further as the pound has already been priced in.”
“The rate vote among committee members could be more important for investors,” he added. “If the vote is close, we will see a greater balance between hawks and doves, which would certainly be negative for the pound.”
Ebury expects the base rate to remain unchanged, possibly in an 8-1 or 7-2 vote.
