Sterling on Track for Longest Losing Streak in a Year
The British pound is on the verge of its longest losing streak since last September, heading toward its fourth consecutive weekly decline. Since mid-July, when the GBP/USD pair hit a one-year high of 1.30, the pound has fallen by over 2%, with the pair currently trading at 1.27.
Factors Behind the Pound’s July Strength
In July, the pound’s strength was driven by unexpected political stability in the UK and a continued economic recovery from last year’s recession. However, this trend has reversed, with the GBP/EUR pair also experiencing a significant drop of 1.84% since late July, moving from nearly a two-year high of 1.19 to 1.16.
Bank of England’s Rate Cut Triggers Pound’s Decline
The primary factor behind the pound’s recent decline is the Bank of England’s decision to cut interest rates for the first time in four years on August 1st. The key rate was lowered from 5.25%, a 16-year high, to 5%. This unexpected move, decided by a narrow 5-4 vote in the Monetary Policy Committee, has intensified pressure on the currency.
Speculation on Future Rate Cuts and Pound’s Vulnerability
Investors are now speculating that further rate cuts may be on the horizon, potentially weakening the pound even more. Although BoE Governor Andrew Bailey has signaled a cautious approach to additional rate reductions, the possibility of further cuts this year remains a concern for the pound’s stability.
Market Analysts Warn of Inflationary Pressures
Financial experts warn that inflationary pressures could persist, with the energy price cap expected to rise this winter and public sector pay agreements potentially driving up prices. The uncertainty surrounding global events, such as a potential second Trump presidency, also looms large, with analysts suggesting that these factors could either bolster or weaken the pound, depending on how they unfold.
SOURCE: Ref Image from Seeking Alpha
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