Investors Eye BoE Rate Cuts as Pound Steadies Near Month-Highs

The pound held near one-month highs as investors anticipate U.S. interest rate cuts, impacting the dollar. Bank of England speeches later today may provide more direction. Federal Reserve signals suggest an imminent U.S. rate cut, influencing sterling. Upcoming UK economic data could affect future monetary policy decisions.

The pound held near one-month highs on Wednesday, buoyed by investor expectations that U.S. interest rates will fall sooner than previously anticipated, weakening the dollar.

Expectations build as Bank of England policymakers Huw Pill and Catherine Mann prepare to speak, potentially providing more immediate direction. The main impetus for sterling/dollar came from the dollar's side, following Federal Reserve Chair Jerome Powell's testimony, where he described the U.S. as 'no longer an overheated economy.'

Though Powell refrained from signaling a timeline for rate adjustments, his remarks suggested an imminent rate cut, marking the first since 2020.

Sterling rose by 0.16% to $1.2807, hitting a peak of $1.28455 on Monday. It has increased by 0.4% this week and 1.2% in July so far. Futures markets indicate a 60% chance of a rate cut at the Bank of England's August 1 meeting, with September fully priced in.

Post-Labour party's landslide election victory, the focus shifts back to monetary policy. Economic growth readings and consumer price index data are key metrics to watch. May's CPI met the BoE's 2% target, driven by lower food prices, yet service-sector prices remain contentious.

'Next week's CPI data will offer new insights,' said Chris Weston of Pepperstone, noting the market has priced a 60% chance for an August rate cut and two more cuts by December.

(With inputs from agencies.)