Pound Trades Cautiously Amid Interest Rate Decision Next Month
The pound (GBP) traded cautiously against other major currencies on Thursday (23/1) as higher-than-expected UK Public Sector Net Borrowing in December weighed on the economic outlook. The Office for National Statistics (ONS) reported on Wednesday that higher borrowing costs and a one-off payment for the repurchase of military accommodation widened the budget deficit. This scenario could force Chancellor Rachel Reeves to raise taxes on individuals or cut public spending, which could slow Britain’s already moderate growth rate.
British government borrowing costs have risen recently amid concerns that higher rates by US President Donald Trump will dampen growth prospects. This led to a sharp increase in the yield on the 30-year government bond to 5.47% on January 14, the highest level seen in more than 26 years.
Meanwhile, investors are turning their attention to the Bank of England’s (BoE) first monetary policy decision of the year, due to be announced on February 6. Traders are almost universally pricing in a 25 basis point (bps) rate cut that would push the benchmark lending rate up to 4.5%. Dovish BoE bets have been raised by weak inflation, a drop in Retail Sales in December, and weak labor demand in the three months to November.
This week, market participants will be looking closely at the S&P Global/CIPS UK flash Purchasing Managers’ Index (PMI) for January, due out on Friday. The index is expected to show overall business activity expanded at a slower pace.
Source: FXStreet
