Sterling rose in European trade on Tuesday against a basket of major rivals, while trying to recoup from four-week lows against the dollar, under pressure from prospects of UK interest rate cuts.

The bearish remarks from Bank of England Governor Andrew Bailey boosted the odds of a 0.25% interest rate cut in November, which would widen the rate gap with the US.

The Price

The GBP/USD rose 0.2% today to $1.3104, with a session-low at $1.3064.

The pair closed down 0.35% on Monday, plumbing four-week lows at $1.3059.

Baileys Remarks

Bank of England Governor Andrew Bailey told the Guardian last week that the bank might move faster to cut interest rates if inflation remained under control.

However, Bailey warned that ongoing geopolitical tensions in the Middle East might raise oil prices and contribute to higher inflation.

UK Rates

Following the remarks, the odds of a 0.25% UK interest rate cut in November surged from 30% to 90%, with a 95% chance of another cut in December.

Now investors await crucial UK GDP growth data later this week to gather more clues on the likely path ahead for monetary policies.

The Rate Gap

The UK-US interest rate gap disappeared in September after the Federal Reserve cut interest rates by 50 basis points.

However, if the BOE went ahead with an accelerated pace of rate cuts this year, the gap could reform once again, especially as the Fed grows less likely to cut interest rates aggressively following a batch of strong US labor data.