The British pound rose in the European market on Tuesday against a basket of global currencies, holding above its lowest level in three weeks against the US dollar recorded earlier in Asian trading, on track to achieve its first gain in the last eight days, amid active buying from low levels.

Governor Andrew Bailey stated that the Bank of England may cut interest rates at a faster pace if the labor market slows, which led to a rise in the likelihood of a 25-basis-point cut in UK interest rates at the upcoming August 7 meeting.

The Price

GBP/USD exchange rate today: The pound rose against the dollar by about 0.2% to $1.3454, from the opening level of $1.3432, and recorded the lowest level at $1.3422 the lowest since June 23.

The pound lost 0.5% against the dollar on Monday, marking its seventh consecutive daily loss the longest losing streak since July 2023 due to comments by the Bank of England Governor.

Andrew Bailey

Bank of England Governor Andrew Bailey told The Times on Monday that the direction of interest rates is definitely downward. In the interview, he gave a strong signal that the bank would accelerate the pace of interest rate cuts if more signs of "slack" appear in the economy.

The term "slack" refers to a scenario in which the economy is not operating at full capacity, with rising unemployment and slowing output. This is considered deflationary and would boost the central bank's confidence that inflation will fall to 2.0% in 2026, as currently expected.

UK Interest Rates

Traders are increasing their bets that the Bank of England will ease interest rates, now expecting at least an additional 50 basis points of cuts this year.

The pricing of a 25-basis-point cut at the Bank of Englands August meeting currently stands above 80%.

UK Labor Market

The UK labor market report, due Thursday, is equally important for the British pound, as it is expected to provide further indicators of a slowdown in the UK labor market.

There are persistent signs that the jobs tax imposed by Rachel Reeves is weighing on the labor market, and more job losses are likely.

Traders main challenge lies in the chaos of UK labor market statistics, as some elements of the survey are now considered inaccurate.

A weak jobs report would provide additional evidence for the Bank of England that the economic slowdown is unfolding, prompting further rate cuts.

With renewed attention in foreign exchange markets on relative interest rates, an acceleration in Bank of England rate cuts would harm the British pound.