The British pound traded just below $1.30, retreating from a recent four-month high, after the Bank of England (BoE) held its benchmark interest rate at 4.5% and signaled a gradual and cautious approach to further withdrawal of monetary policy restraint. While inflation has eased notably in recent months, policymakers remain wary of lingering price pressures, particularly in light of evolving global trade uncertainties.
Sterling slightly below $1.3 after BoE decision
The recent announcement of U.S. tariffs has raised concerns about potential ripple effects on supply chains and consumer prices. In response, some governments have hinted at retaliatory measures, fueling fears of a broader trade war that could impact the UK’s trade-dependent economy. Meanwhile, domestic economic data continues to point to sluggish growth, with business investment and consumer confidence remaining fragile. Prime Minister Keir Starmer faces mounting challenges in restoring economic optimism, particularly as high borrowing costs continue to weigh on businesses and households.
On the labor front, fresh unemployment data showed that the jobless rate held steady at 4.4%, while wage growth slowed slightly to 5.8%, in line with expectations. While the moderation in wage growth suggests some cooling in inflationary pressures, it remains elevated compared to historical norms, reinforcing the BoE’s cautious stance on rate cuts.
BoE followed suit the Fed
Across the Atlantic, the Federal Reserve left interest rates unchanged but signaled two rate cuts later this year, reinforcing expectations of diverging monetary policies between the U.S. and the UK. If the Fed eases policy before the BoE, it could provide further downside pressure on the dollar, potentially supporting the pound in the medium term. However, ongoing concerns over economic weakness and trade disruptions may cap sterling’s gains, keeping investors on edge as they assess the outlook for both economies.
