Daily digest market movers: Pound Sterling drops on firm BoE rate-cut prospects
- The Pound Sterling exhibits a poor performance against its major peers, except the Australian Dollar (AUD) and the New Zealand Dollar (NZD), on Thursday. The British currency has faced significant pressure as market experts see the Bank of England (BoE) pivoting to policy normalization in August.
- A Reuters poll conducted July 18-24 showed that more than 80% of economists said the BoE will reduce its key borrowing rates by 25 basis points (bps) to 5% in the August meeting. However, the prediction of a rate-cut in June’s poll was higher, with 97% of respondents favoring a rate-cut move. Contrary to Reuters’ poll, market participants are only pricing in a 45% chance for rate cuts in August.
- An absence of BoE officials’ endorsement for rate cuts seems to have kept market speculation limited. The United Kingdom’s annual headline inflation has returned to the central bank’s desired rate of 2%. However, policymakers hesitate to authenticate rate-cut expectations amid fears of wage growth remaining persistent, which fuels inflationary pressures in the service sector.
- On the economic data front, the upbeat preliminary UK S&P Global/CIPS report for July has indicated a firm start to the third quarter. The Composite PMI came in higher at 52.7 than estimates of 52.6 and the former release of 52.3 due to an increase in activities in the manufacturing as well as service sectors. The Manufacturing and Services PMI expanded to 51.8 and 52.4, respectively, outperforming their former releases
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