Sterling is on track for its most substantial weekly advance against the dollar this year, propelled by the Bank of England’s decision to maintain rates and resist speculation about imminent rate cuts. Lower U.S. yields further pressured the greenback, contributing to Sterling’s resilience.
The pound exhibited a 0.4% weekly gain, reaching $1.2753, marking its most significant increase in seven weeks. Against the euro, Sterling held its ground at 85.29 pence, concluding the week stronger against the euro for the sixth consecutive week.
The focal point of the week was Thursday’s Bank of England meeting, where Governor Andrew Bailey tempered expectations of imminent rate cuts. While acknowledging the need to combat inflation, Bailey emphasized the persistence required in the current policy stance. The pound responded positively to the announcement.
Market analysts, such as those from Bank of America, noted the divergence between the Bank’s position and current market pricing. Despite prevailing uncertainties in U.S. regional banks, analysts remain optimistic about the Pound’s outlook, citing favorable rates and volatility dynamics.
The ongoing turbulence in U.S. regional banks, particularly following increased stress in commercial real estate portfolios, contributed to a fall in the benchmark 10-year Treasury yield. The U.S. dollar index, tracking the dollar against six peers, is poised for its first weekly decline in 2024.
Investors are also evaluating a recent survey by U.S. bank Citi, revealing heightened inflation expectations among the British public in January. Concerns about shipping disruptions in the Red Sea potentially influenced this shift in sentiment.
