Odds of BOE rate cut in September recede Increasing speculation of a reduction in US-UK rate gap Sterling rose in European trade on Tuesday, resuming gains against the US dollar and approaching 29-month highs once more following remarks by Bank of England Governor Andrew Bailey in Jackson Hall, which were more bullish than expected.

The remarks reduced the odds of a BOE rate cut in September, in turn boosting the pound.

The Price

The GBP/USD pair rose 0.3% today to $1.3223 , with a session-low at $1.3180.

The pair closed down 0.25% on Monday on profit-taking away from 29-month highs scaled on Friday at $1.3230.

Sterling rallied 2.1% against the dollar last week, the largest weekly profit since October 2023.

Bailey

Bank of England Governor Andrew Bailey said it remains too early to announce victory over inflation in the US, indicating a more persistent bullish stance on policies.

The remarks are contradictory to his Fed counterpart Jerome Powell, which used the Jackson Hall platform to confirm a September rate cut.

Bailey has cautioned that inflation might rise once again by the end of the year, posing risks.

UK Rates

Following Baileys speech, the odds of a BOE interest rate cut in September stood at just 30%, and at 50% for a September rate cut.

US Rates

According to the Fedwatch tool, the odds of a 0.5% Fed rate cut in September stood at 38%, and at 62% for a 0.25% rate cut.

Markets are expecting 100 basis points of US rate cuts this year.

Rate Gap

The current UK-US rate gap stands at 50 basis points in favor of the US, and will likely shrink to 25 basis points at least in September, underpinning the pounds standing against the dollar.

Sterling Outlook

Bank of America strategists expect the pound to gain more ground and potentially hit $1.35 by the end of the year, as fundamentals continue to support its performance against main rivals.