The Pound Sterling strengthened against major currencies despite a slight increase in dovish bets from the Bank of England (BoE) for 2025. Investors focus on the potential for UK rate cuts being less aggressive compared to the Federal Reserve and the European Central Bank.
The Pound Sterling rises against its major peers as investors look beyond the mild increase in BoE dovish bets for 2025. The revised UK GDP estimates for Q3 show that the economy remained flat. The latest commentary by Fed officials shows less willingness to cut interest rates in 2025 amid uncertainty surrounding Trump’s policies.
The Pound Sterling (GBP) moves higher against its major peers on Monday as investors largely ignore a mild increase in Bank of England’s (BoE) dovish bets for the next year. Traders see a 53-basis points (bps) reduction in interest rates in 2025, up from 46 bps after the BoE policy announcement on Thursday. BoE dovish bets accelerated after three out of nine Monetary Policy Committee (MPC) members proposed reducing interest rates by 25 bps, more than the one projected by market participants. Investors considered the 6-3 vote split as a dovish buildup for the next year, which weighed heavily on the Pound Sterling. Market expectations for 53 bps reduction in interest rates in 2025 suggest that there will be at least two 25-basis-points rate cuts. Still, speculation for the number of interest rate cuts by the UK central bank is similar to that of the Federal Reserve (Fed) and fewer than those expected from the European Central Bank (ECB), making the Pound Sterling an attractive bet in the broader term. On the contrary, analysts at Deutsche Bank expect the BoE to announce four interest-rate cuts next year, one coming in the first half and the rest in the second half. Meanwhile, data released on Monday downwardly revised the UK growth rate for the third quarter of the year, raising concerns over the United Kingdom’s (UK) economic outlook. The Office for National Statistics (ONS) reported that the economy remained stagnant in the third quarter, against the 0.4% growth in the April-June period and less than the 0.1% expansion previously estimated.
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