Pound Sterling trades higher against its peers despite BoE Bailey’s dovish remarks
- The Pound Sterling outperforms its major peers even as BoE’s Bailey delivers dovish remarks on the interest rate outlook.
- BoE’s Bailey remains confident that the UK inflation will return to the 2% target soon.
- The US Dollar has come under pressure after Trump’s SOTU before Congress.
The Pound Sterling (GBP) trades higher against its major currency peers, except antipodeans, 0.23% higher to near 1.3520 against the US Dollar (USD) during the European trading session on Wednesday. The British currency gains even as Bank of England (BoE) Governor Andrew Bailey has delivered dovish remarks on the monetary policy outlook.
Pound Sterling Price Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.16% | -0.18% | 0.20% | -0.12% | -0.55% | -0.21% | -0.04% | |
| EUR | 0.16% | -0.02% | 0.37% | 0.04% | -0.40% | -0.05% | 0.12% | |
| GBP | 0.18% | 0.02% | 0.40% | 0.06% | -0.38% | -0.02% | 0.14% | |
| JPY | -0.20% | -0.37% | -0.40% | -0.30% | -0.74% | -0.40% | -0.23% | |
| CAD | 0.12% | -0.04% | -0.06% | 0.30% | -0.44% | -0.10% | 0.08% | |
| AUD | 0.55% | 0.40% | 0.38% | 0.74% | 0.44% | 0.36% | 0.52% | |
| NZD | 0.21% | 0.05% | 0.02% | 0.40% | 0.10% | -0.36% | 0.17% | |
| CHF | 0.04% | -0.12% | -0.14% | 0.23% | -0.08% | -0.52% | -0.17% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
On Tuesday, the comments from BoE’s Bailey before the Parliament’s Treasury Committee signaled that there is scope for interest rate cuts amid the expectation that inflationary pressures will return to the central bank’s 2% target.
BoE’ Bailey didn’t explicitly endorse an interest rate cut in the Market policy meeting, but said, “Rate cut at next meeting is a genuinely open question”.
On Monday, BoE Monetary Policy Committee (MPC) member Alan Taylor advocated for two to three interest rate cuts in the near term amid downside employment risks and cooling inflationary pressures. “Risks are shifting to lower inflation and higher unemployment, Taylor said, and added, “We [the BoE] might have two-three rate cuts to go before theoretical neutral level.”
Meanwhile, correcting US Dollar (USD) has also offered strength to the GBP/USD pair. As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.2% lower to near 97.65.
The US Dollar has come under pressure after United States (US) President Donald Trump’s State of the Union (SOTU) address before Congress, in which he praised his economic achievements and criticized the Supreme Court for ruling against tariffs.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
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