On Tuesday, the British Pound consolidated at a high of more than two weeks against the US dollar, but it was still within the recent trading ranges.
Meanwhile, the markets were assessing the possibility of a 50 basis points increase in the interest rate by the Bank of England, as the economic outlook continues to worsen.
Interest rate hike
According to the latest predictions from analysts, it is expected that the Bank of England (BoE) will shy away from such a large hike in the interest rate in its meeting on August 4th.
Instead, it would continue to stick to its modest increases of 25 basis points that it has been making since December.
However, it is expected to be a close call because even though BoE is going to tighten the monetary policy like the Fed, the UK’s economic outlook is far worse than that of the United States.
It is because of this darkening economic outlook that the monetary authority is expected to opt for a less hawkish stance.
Pound’s movements
The British currency rose against the US dollar to its highest level which was last seen at the beginning of July at $1.2090. Sterling had revisited the low it had last seen in March 2020 in this month of about $1.18.
In late London trading, the pound was trading at a value of about $1.2052. It also gained against the struggling euro to trade at a value of 84.11 pence.
The euro has been struggling significantly this year because of a gloomy economic outlook for the entire continent.
The gas supply concerns are taking a toll on the single currency, as is the soaring inflation, which prompted the European Central Bank (ECB) to hike its interest rate for the first time after 11 years by 50 basis points.
As a matter of fact, the common currency even hit parity against the dollar, even though it eventually managed to recover and got some support from the ECB hike. But, gas supply worries from Russia are taking a toll on its performance.
According to the latest positioning data, the bearish bets against the sterling have been consolidated by investors close to a value of $4.3 billion, which had reached a peak two years back in May at $6.2 billion.
Other factors
The political environment of Britain is also a factor in the British currency’s performance. The race is on between two candidates who are vying to replace Boris Johnson as the Prime Minister.
Lizz Truss and Rishi Sunak, the foreign secretary and the former finance minister, are the two remaining options.
As the two have different fiscal policies, it is likely to have an impact on the sterling, depending on who is finally chosen. The final selection will be made at the beginning of September.
Meanwhile, market sentiment also remained cautious ahead of the US Federal Reserve’s meeting that is scheduled to end on Wednesday. The central bank is expected to announce an interest rate increase of 75 basis points yet again.
