Pound Sterling Falls From Highs Against Euro and Dollar as Bailey Struggles To Convince

PoundSterlingLIVE – The jump in the value of Pound Sterling seen last week appears to be something of a false dawn for those wanting a stronger exchange rate as the UK currency comes back under pressure amidst a softening global market backdrop and increased bets the Bank of England will cut interest rates before long.

was in focus midweek, telling delegates at a conference hosted by the Central Bank of Ireland that it was too soon to start talking about rate cuts.

The message was another attempt by Bailey to resist the market’s urge to bring forward rate cut expectations, a development that has been weighing on the Pound since August.

Bailey said there was a need to “maintain rates policy to curb inflation… it’s really too early to be talking about cutting rates.”

The market is nevertheless looking through Bailey’s protestations, instead focussing on his comments that inflation is set to come in “quite a bit lower” in this month’s inflation release from the ONS.

He also said the Bank’s policy settings were now restrictive, and UK economic growth was “very subdued”.

A soft Pound and subdued UK bond yields suggest the market is placing greater emphasis on the comments regarding falling inflation and a slowing economy; this in itself is a message that further rate hikes won’t be required and that the conditions for rate cuts are not far off.

The exchange rate is two-thirds of a per cent below Monday’s peak and is quoted at 1.1489 at the time of writing, the exchange rate is meanwhile 1.40% below Monday’s peak at 1.2252.

Underpinning a weaker Pound was a softer market backdrop, with equities coming off the highs that were triggered by last week’s U.S. jobs report that suggested the economy was slowing enough to prevent the Federal Reserve from raising interest rates again.

Expectations for lower interest rates in the U.S. are supportive of global equities and risk-associated assets such as the Pound.

But the market has been unable to materially follow through with last week’s gains, which has in turn contributed to the softer tone in the Pound.

An original version of this article can be viewed at Pound Sterling Live