Daily digest market movers: Pound Sterling outperforms on optimism over BoE’s slower policy-easing process
- The Pound Sterling performs strongly against its major peers, except Asia-Pacific currencies, on firm speculation that the Bank of England’s (BoE) policy-easing cycle will be slower than that of other major central banks. Robust expectations for a slower BoE policy-normalization process are backed by a strong United Kingdom (UK) economic outlook and still high wage growth.
- Flash UK S&P Global/CIPS PMI data for August, released Thursday, showed that the overall business activity rose at a faster pace to a four-month high at 53.4, driven by a strong expansion in manufacturing as well as the services sector. The report also signaled a sharp reduction in the backlog of work and positive sentiment towards the business outlook that points to strong job creation.
- These strong economic prospects, however, are unlikely to ease market speculation of one more interest rate cut by the BoE this year as input prices in the service sector eased to their lowest level in just over three-and-a-half years in August. This is a relief for BoE policymakers as they appeared uncomfortable in cutting interest rates while inflation in the service sector remains elevated.
- Apart from Powell, investors also await BoE Governor Andrew Bailey’s speech at the JH Symposium, which is scheduled at 19:00 GMT. Andrew Bailey is expected to provide fresh cues about whether the BoE will cut interest rates in September
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