The British pound is set to record its second straight monthly gain in July and fourth rise in five months. This comes as the Bank of England (BoE) mulls further interest rate hikes in an effort to cool stubborn inflation.
Currently, the British central bank is expected to raise interest rates at its next policy meeting for the 14th time in this aggressive monetary tightening cycle. Even after inflation showed signs of slowing in June, a persistent rise in consumer prices has bolstered the need for the BoE to tighten its monetary policy further on Thursday.
On Monday, the pound stood steady against the dollar at $1.2856 with the euro being worth 85.85 pence. Unlike the BoE, both the U.S. Federal Reserve and the European Central Bank have confirmed their decisions to institute an interest rate pause during their September meetings.
“The market is priced aggressively for further rate hikes from the Bank of England and if that gets dialled down, this will weaken the pound,” Danske Bank’s Kundby-Nielsen observed before adding, “But significant further increases could hurt the economy even more. It’s a double-edged sword and I don’t really see a best-case scenario for the pound.”