HomeFinancial MarketsSterling Rally Ceases Ahead of ECB Rate Hike

Sterling Rally Ceases Ahead of ECB Rate Hike

The British pound fell against the strengthening U.S. dollar on Thursday as investors await the latest policy announcement from the European Central Bank. Scheduled for 12:15 GMT, the ECB is expected to announce an interest rate hike of 75 basis points to 0.75%. There is also hope among investors that ECB president Christine Lagarde may soften her stance on future interest rate increases.

Over the first two days since the newly-inaugurated UK Prime Minister Rishi Sunak took office, his promise to rectify the errors of his predecessor and stabilize the economy drove a 3% rise for the sterling against the US dollar; an almost six-week high. This increase cooled down, however, following Sunak’s decision to push back his administration’s upcoming fiscal statement into November. As a result, the sterling lost 0.4%.

According to new data, the British economy looks to have a bleak short-term outlook, with inflation edging close to a 40-year high, thereby further driving the nation’s cost of living crisis.

The postponement of the government’s fiscal update spells bad news for the Bank of England, as it will not be able to use the information divulged in the address as part of its economic forecasts. The BoE has a target of bringing inflation back down to 2%.

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