On Friday, the pound sterling saw a rise in the European market against a group of global currencies and continued to maintain its gains for the third day in a row against the US dollar. It is approaching its highest level in a year, trading above the $1.3 barrier for the first time in 2024 and is on the verge of a second consecutive weekly gain.
This clear brilliance of the pound sterling is due to growing hopes that the gap in interest rates between Britain and the United States will shift in favor of British interest rates. This is in light of the decline in the possibility of a reduction in interest rates by the Bank of England, and the increase in the possibility of a reduction in interest rates by the Federal Reserve. Due to the continuous improvement in the performance of the pound sterling, the current exchange rate of the pound against the dollar is witnessing an increase of 0.2%, reaching $1.2933. It is worth noting that the opening price of trading was $1.2909, and the lowest during the day was recorded at $1.2902.
In the previous session, the pound sterling ended up 0.5% against the dollar, for the second day in a row. It reached the highest level of the year at $1.2950, thanks to the release of strong data indicating strong growth in the United Kingdom and weak inflation in the United States. Comments from the Bank of England’s chief economist, Hugh Bell, indicated that the central bank was close to cutting interest rates, but stressed that service price inflation and wage growth remained uncomfortably strong. This gives an indication that interest rates may be cut in the future, but the timing remains uncertain. Over the course of this week’s trading
Strong growth in the UK
The Office for National Statistics confirmed on Thursday that UK GDP rose by 0.4% month-on-month in May. This growth significantly exceeds the consensus estimate of 0.2% growth and exceeds the previous April reading which was flat at 0%. This increase is due to strong growth in the services sector, which is the largest sector in the UK economy. As output recorded an increase of 0.3% in May 2024. These numbers indicate the continued recovery of the British economy and enhance hopes for sustainable growth.
This data means that the UK economy grew by 0.9% in the three months to May 2024 compared to the three months to February 2024, driven by a 1.1% growth in services production. This data may be consistent with the continued strong economic recovery in the UK, which reduces the need for the Bank of England to intervene and provide support by lowering interest rates. Strong data and strong production in the services sector mean that inflation in this sector will likely remain high.
Regarding the British interest rate and the American interest rate: Based on the comments and data mentioned, the market indicates the possibility of a decline in the Bank of England’s decision to reduce British interest rates at the next August meeting to less than 50%, and market expectations indicate a reduction of less than 50 basis points this year. As for US interest rates, inflation data were released in the United States indicating that prices slowed in June at the slowest pace in a year. This increased the odds of a cut in US interest rates by about 25 basis points in September from 73% to 84%, and the odds of a cut in November increased from 85% to 93%. The British pound is the currency of the United Kingdom
Interest rates and expectations about the performance of the British pound
The current interest rate gap between the UK and the US holds steady at 25 basis points in favor of the US rate, and this is the lowest gap since March 2022. Based on current expectations about interest rates in both the UK and the US, the gap is likely to disappear completely in Next September if US interest rates are reduced by about 25 basis points, while British interest rates remain stable.
If the Bank of England continues to keep interest rates steady, while the Federal Reserve makes a second cut in November, the direction of the interest rate gap may shift in favor of the British interest rate by about 25 basis points, which enhances investment opportunities in the pound sterling. As for expectations for the performance of the pound sterling, the pound The pound exceeds the target for today’s expectations, 07-12-2024. Some expect the pound sterling to continue rising against the US dollar and reach levels above $1.3.
The price of the pound sterling against the dollar shows new positive trading to move away from the $1.2890 level, reinforcing expectations of a continuation of the upward trend for the rest of the day, and the way is open to achieving our next target at $1.3000, so that the positive scenario remains valid and effective unless the $1.2890 level is broken and remains below it. The expected trading range for today is between the support at $1.2840
What countries use the pound sterling? The pound sterling (symbol: £; ISO code: GBP), also called the pound for convenience, is the currency in circulation in the United Kingdom and its dependencies of the Isle of Man, the English Channel Islands, and the British Overseas Territories of South Georgia and the South Sandwich Islands and the British province of the continent.
