Pound Steadies After BoE Rate Cut, Investors Anticipate Further Adjustments

The pound stabilized on Friday following sharp losses due to the Bank of England's first interest rate cut in over four years. Governor Andrew Bailey emphasized that the central bank is not committed to quick successive cuts, though inflation risks remain a concern. Investors foresee further rate adjustments this year.

The pound stabilized on Friday after experiencing sharp losses a day earlier when the Bank of England (BoE) reduced interest rates for the first time in more than four years. The currency was nearly flat at $1.2739, following a fresh one-month low of $1.2708 earlier in the session, and was on track to post a 1% weekly decline.

On Thursday, the BoE cut rates by a quarter-point to 5% after a tight vote by policymakers, highlighting the persistent inflation risks plaguing the economy. Governor Andrew Bailey emphasized that the central bank is not committed to a series of swift rate cuts, noting the economy's stronger recent performance could maintain inflation risks.

Despite this, the pound weakened against the euro, hitting an eight-week low of 84.995 pence. Euro/sterling closed 0.27% higher at 84.915 pence. ING analysts foresee the UK policy rate being cut more than in the eurozone, predicting a higher euro/sterling rate above 85 later this year.

Investors anticipate another rate cut by the BoE this year. Concurrently, the dollar eased against major currencies ahead of U.S. payroll data expected to show slower yet healthy employment growth in July.

A wave of selling hit stock markets Thursday and Friday, while safe-haven currencies and bonds rose after data showed a surprise slump in U.S. manufacturing. Fed Chair Jerome Powell indicated a potential U.S. rate cut in the forthcoming policy meeting, with traders now factoring in a higher likelihood of a significant 50 basis point rate cut.