Pound Sterling Holds Ground Near 1.2500 Amid Strong UK Economic Data and BoE Policy Outlook

In the London session on Friday, the Pound Sterling (GBP) maintained its gains near the 1.2500 level against the US Dollar (USD). The GBP/USD pair demonstrated resilience following recent survey data indicating an improved economic outlook for the United Kingdom, coupled with the Bank of England (BoE) maintaining higher interest rates.

According to the preliminary PMI report from S&P Global/CIPS released on Tuesday, the services sector in the UK exhibited robust activity, driving overall economic activity higher despite a slightly lagging Manufacturing PMI. Notably, new business inflows in the services sector remained strong, underscoring sustained demand.

The surge in demand for services is anticipated to bolster employment and wages within the sector, contributing to inflationary pressures. This trend could impede progress towards the BoE’s desired inflation target of 2%. Currently, UK annual service inflation stands at 6%, surpassing the level conducive to bringing inflation down to the target rate.

Despite some BoE policymakers foreseeing a sharp decline in inflation in the coming months, there remains reluctance to specify a precise timeline for potential interest rate cuts. During the press conference following the recent monetary policy meeting, BoE Governor Andrew Bailey acknowledged that market expectations for two or three rate cuts this year are not considered “unreasonable.”

The combination of upbeat economic data and cautious monetary policy sentiments from the BoE continues to shape market sentiment around the Pound Sterling, maintaining its current strength against the US Dollar. Investors are closely monitoring developments in UK inflation dynamics and BoE policy signals for further insights into potential shifts in interest rate expectations.

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