Sterling reaches 4-month high amid prospects of Bank of England cut interest rates

(MENAFN) On Thursday, the British pound surged to its highest level in four months, reaching USD1.2864, following remarks from Bank of England policymakers that tempered expectations of an imminent interest rate cut in August. The cautious optimism in the markets was fueled by statements emphasizing that price pressures remained, suggesting a more balanced approach towards monetary policy.

Conversely, the US dollar weakened ahead of the anticipated US inflation report later in the day. The Australian dollar also saw gains, climbing 0.16 percent to USD0.6758, reaching its peak since January at USD0.6763 earlier in the session. Similarly, the euro showed slight gains against the dollar, trading at USD1.0836, while the dollar index held steady at 104.91 against a basket of major currencies.

Investors are eagerly awaiting the US inflation data, with expectations forecasting a 0.2 percent month-on-month increase in core inflation for June, pushing the annual rate to 3.4 percent. These figures are pivotal as they influence market expectations regarding the Federal Reserve's future monetary policy decisions.

Market sentiment, as reflected in the CME FedWatch tool, indicates a heightened probability of over 70 percent for a rate cut by the Federal Reserve in September, up from around 50 percent just a month ago. Federal Reserve Chairman Jerome Powell underscored the central bank's commitment to making interest rate decisions based on economic indicators, dismissing speculation that any rate cut in September could be influenced by political considerations ahead of the upcoming presidential election.

Elsewhere in the currency markets, the New Zealand dollar recovered slightly, rising 0.2 percent to USD0.6096. This rebound followed a previous session where it fell 0.7 percent in response to a dovish tone in the Reserve Bank of New Zealand's recent monetary policy statement.

Meanwhile, the Japanese yen continued its decline, affected by the substantial interest rate differential between the United States and Japan. In the latest trading, the yen was quoted at 161.67 against the dollar, near its lowest level in 38 years, highlighting ongoing currency dynamics driven by monetary policy disparities between the two economies. 

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