Pound Sterling Hits Two-Week High Against USD on BoE Inflation Outlook Uncertainty

In Monday’s London session, the Pound Sterling (GBP) surged to a fresh two-week high against the US Dollar (USD) near 1.2550, driven by positive market sentiment and a weakening US Dollar. The GBP/USD pair’s strength reflects mixed guidance from Bank of England (BoE) policymakers regarding the inflation outlook, creating uncertainty around the timing of potential interest rate cuts.

BoE Deputy Governor Dave Ramsden indicated in mid-April that the risks of elevated inflation have diminished. He forecasted that headline inflation would return to the 2% target in May and remain around this level for the next two years.

Conversely, other BoE policymakers like Chief Economist Huw Pill, Jonathan Haskel, and Catherine Mann are less optimistic about the inflation trajectory. They emphasize the importance of core Consumer Price Index (CPI) data, highlighting persistent service inflation. Pill recently remarked, “Time for cutting bank rate remains some way off.”

Financial markets anticipate that the BoE may shift towards rate cuts in either the June or August meetings. Economist James Smith from ING Financial Markets noted, “It is between June and August, and we are leaning slightly towards August based on service inflation dynamics. If services inflation remains sticky, it could further tilt the balance towards August over June.”

The uncertainty surrounding the BoE’s stance on interest rates, particularly in response to service inflation trends, has bolstered the Pound Sterling against the US Dollar, contributing to its recent two-week high.

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