Sterling gains against the dollar and ahead of UK inflation data and BoE meeting on Monday. This follows a slight dip last week. The pound rose by 0.5%, reaching $1.3190. It was above Friday's close of $1.3125. Analysts note that the pound is holding up well. Niels Christensen, chief analyst at Nordea, suggests the Bank of England (BoE) might be less aggressive with rate cuts. This is due to an anticipated increase in core inflation.
The BoE is expected to keep interest rates steady this week. This follows a 25-basis-point cut last month. Futures markets suggest a 38% chance for another quarter-point cut. This compares to a 20% chance on Friday. The inflation figures, due on Wednesday, will be crucial. They precede the BoE's policy announcement. Recent data from the Office for National Statistics showed an unexpected stagnation in July's economy.
Volkmar Baur, FX strategist at Commerzbank, explains that the anticipated rise in core inflation is a key factor. This expectation contributes to the likelihood of no change in the key rate. However, if core inflation does not rise as expected, the BoE might face tougher decisions. This comes after recent weaker economic data.
The European Central Bank (ECB) cut interest rates by 25 basis points last week. The ECB also indicated a potential decline in borrowing costs in the coming months. This is due to slowing inflation and dwindling economic growth in the euro zone. The pound remained stable at 84.35 pence against the euro. Meanwhile, the dollar weakened, and the yen hit its highest level in over a year. This shift is driven by market expectations for a significant rate cut by the Federal Reserve later this week.
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Sterling gains ahead of BoE meeting and UK inflation data. Learn more about recent Forex market movements and what to expect from the BoE.
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