The pound held steady against the dollar on Friday, but was expected to end the week lower after coming under pressure from divergent views from policymakers at the Bank of England and a US Federal Reserve now more reluctant to cut interest rates. ‘interest.
The pound remained steady against the dollar at $1.2500, after falling to a one-month low of $1.2475 earlier in the day.
Sterling was set for a weekly fall of 0.8%, its second week of losses against the dollar.
The BoE kept its main interest rate unchanged at 4.75% on Thursday, but policymakers became more divided over the need to cut rates to combat the slowing economy.
To the surprise of the markets, three of the nine members of the BoE’s Monetary Policy Committee voted in favor of a quarter-point reduction in the interest rate.
Operators now expect UK rates to fall by around 60 basis points (bps) next year, compared to around 45bps just before the decision.
The move reduced the outlook for sterling, one of the year’s best-performing currencies against the dollar, while providing respite to battered UK government bond markets.
Michael Brown, a strategist at Pepperstone, says further cuts are likely next year, given that inflation in the services sector is expected to slow and there is a risk of rising unemployment.
“I expect the Bank of England to cut interest rates by at least 100 basis points, if not more,” he said.
“I think the path of least resistance for the pound, relative to the dollar and the euro, is down. Certainly relative to the euro as part of a reassessment of monetary policy, but relative to the dollar, you’re dealing with two very, very different economic outlooks,” Brown said.
Britain’s economy contracted for the second consecutive month in October, while US Fed Chairman Jerome Powell told reporters on Wednesday that “the US economy has been just remarkable, I feel very good in the economic situation.
The dollar jumped against almost all currencies on Wednesday after Fed policymakers signaled they expect just two more interest rate cuts next year, down from a previous estimate of four cuts.
Data on Friday showed UK retail sales rose 0.2% in November, which was less than expected.
Sterling was down 0.2% against the euro, at 82.99 pence.
The pound sterling is trading at its highest level against the euro since the start of 2022, and well away from the levels reached in June 2016.
