Sterling Moves rose in European trade on Friday, extending gains for the second straight day against the dollar
buoyed by hot UK growth data. The positive GDP data impacted the odds of early UK interest rate cuts
indicating that the Bank of England (BOE) may take a cautious approach to monetary policy. The latest UK growth figures suggest that the country’s economy is stabilizing, leading to increased optimism among investors.
Sterling’s Rise After UK Growth Data
The GBP/USD pair rose 0.15% to $1.2541, with a session-low at $1.2512. This gain follows a 0.2% increase on Thursday, marking the first profit in three days and moving away from two-week lows at $1.2446. The sterling’s positive move is influenced by the recent hot UK growth data, which shows signs of economic recovery. The broader market sentiment has improved, supporting sterling’s upward trajectory against a basket of major rivals.
Impact of UK Growth Data on Interest Rate Expectations
The latest UK GDP growth data has played a significant role in shaping interest rate expectations. The Bank of England maintained interest rates unchanged at 5.25%, the highest in 15 years
signaling a cautious approach to monetary policy. The hot growth data reduces the likelihood of early UK interest rate cuts in June
as investors now await important inflation and wages data later this month.
The Bank of England’s Stance on Interest Rates
BOE Governor Andrew Bailey indicated that the central bank is not yet ready to cut interest rates
as such a decision requires clear evidence that inflation is moving towards the 2% target. Although a June interest rate cut isn’t ruled out, it is considered unlikely based on the current data. The BOE’s cautious stance suggests that the central bank is taking a measured approach to managing inflation and economic stability.
UK Capital Economics’ Outlook
UK Capital Economics’ chief economist Roth Gregory noted that the UK economy remains somewhat weak
but early signs indicate that GDP growth will be strong in April. This positive outlook suggests that the BOE isn’t in a rush to cut interest rates, given the improving economic performance. The BOE’s forecasts indicate that UK inflation could hit 2% in the second quarter, with potential increases in subsequent quarters.
Upcoming UK Inflation and Wages Data
Investors are now looking ahead to important UK inflation and wages data later this month
which could influence the BOE’s policy decisions. These data points will be crucial in determining the central bank’s approach to interest rate cuts and provide insights into the future trajectory of the UK’s economy. The results of these upcoming reports will likely play a significant role in shaping the market sentiment towards sterling and UK interest rates.
Conclusion
Sterling Moves positive move after hot UK growth data highlights the impact of improving economic conditions on the broader market sentiment. The Bank of England’s cautious approach to interest rates, along with the latest GDP growth figures
suggests that the central bank is focused on maintaining stability. As investors monitor the upcoming UK inflation and wages data, the outlook for sterling and UK interest rates remains dynamic.
FAQs
Q1: What caused sterling to rise after the hot UK growth data? A1: Sterling Moves rise is influenced by the positive UK GDP growth data, which shows signs of economic recovery. The hot growth data reduces the likelihood of early UK interest rate cuts, leading to increased optimism among investors and supporting sterling’s upward trajectory against a basket of major rivals.
Q2: How does the latest UK growth data affect the Bank of England’s interest rate decisions? A2: The latest UK growth data impacts the odds of early UK interest rate cuts. The Bank of England (BOE) has maintained a cautious approach to monetary policy, indicating that interest rates will remain unchanged until there is clear evidence that inflation is heading towards the 2% target.
Q3: What is the BOE’s stance on interest rate cuts after the hot UK growth data? A3: The BOE has maintained interest rates at 5.25%, the highest in 15 years, and indicated a cautious approach to cutting rates. BOE Governor Andrew Bailey stated that it is too early to consider rate cuts
suggesting that the central bank focused on ensuring inflation moves towards the 2% target.
Q4: How does UK Capital Economics view the current UK economy? A4: UK Capital Economics’ chief economist Roth Gregory believes that the UK economy remains somewhat weak
but early signs suggest that GDP growth will be strong in April. This outlook aligns with the BOE’s cautious approach to interest rates, indicating that the central bank isn’t in a rush to cut rates.