Exploring the Recent Fall of the GBP in European Trade
GBP fall in European trade on Wednesday against a basket of major rivals, sharpening losses for the sixth straight day against the dollar and plumbing six-month lows on UK interest rate forecasts. In this article, we’ll delve into the factors contributing to the GBP’s decline and what the future might hold for this currency.
GBP fall and The Bank of England’s Hesitation
The Bank of England barely presented any hints of another interest rate hike this year. GBP fall This hesitation has cast doubts on the GBP’s strength, as the current gap with the US dollar could actually increase. GBP fall The Federal Reserve, in contrast, is expected to raise rates again this year.
GBP/USD Exchange Rate
The GBP/USD exchange rate reflects the decline as it fell 0.2% to 1.2136, reaching its lowest point since March. It had a session-high at 1.2164 before losing 0.45% on Tuesday, marking the fifth consecutive loss. GBP fall Investors have been favoring the greenback following a surge in US treasury yields.
Uncertainty Surrounding UK Rates
Uncertainty shrouds the UK interest rates as there’s now less than a 50% chance of another rate hike. Markets are expecting the current 5.25% rate to be the likely peak, even though Bank of England policymakers voted last week to hold interest rates unchanged at 5.25%. This decision was contrary to market expectations, which anticipated a 0.25% hike.
GBP fall Monitoring the Impact
The Bank of England has decided to focus on monitoring the impact of its recent policy decisions on the economy, especially as it starts to show signs of slowing down. GBP fall This cautious approach to policy has fueled speculation about an actual interest rate cut by the BOE in September 2024, with the odds currently standing at 55%.
GBP fall The Interest Rate Gap
The current interest rate gap between the US and the UK stands at 25 basis points, the lowest since March 2022. However, it expected to rise to 50 basis points in November. GBP fall This shift is primarily due to the Fed’s increasing expectations of raising interest rates by 25 basis points before the year-end.
In conclusion, the GBP’s recent decline can attribute to the Bank of England’s cautious approach to interest rates, which has created uncertainty in the market. As the Federal Reserve moves in the opposite direction, the gap between the US dollar and the GBP expected to widen. This dynamic will continue to shape currency markets in the coming months.
FAQs
- Why is the GBP falling against the dollar?
The GBP’s decline can attribute to the Bank of England’s hesitation in raising interest rates, while the Federal Reserve expected to do so. - What is the current GBP/USD exchange rate?
The GBP/USD exchange rate is currently at 1.2136, its lowest point since March. - Are there expectations of a rate cut by the Bank of England?
Yes, there is growing speculation about an interest rate cut by the BOE in September 2024, with odds standing at 55%. - How is the interest rate gap between the US and the UK expected to change?
The interest rate gap is expected to widen, going from the current 25 basis points to 50 basis points in November. - What impact does the GBP’s decline have on the UK economy?
The decline in the GBP can impact various aspects of the UK economy, including inflation and trade, as it affects the cost of imports and exports.