The Bank of England cut rates by 25bp as expected, lowering the base rate to 4.00%. There as a 5 to 4 vote split, where two members preferred a 50 bp cut and four voted to hold. This indecisiveness sent a nuanced signal - markets read it as a “hawkish cut,” with GBP pushing higher as future rate cut expectations were tempered. Governor Bailey reiterated the need to move “gradually and carefully,” but flagged inflation risks, with CPI seen peaking near 4% later this year.
USD snapped a four-day losing streak on Thursday, supported by news that Fed Governor Waller may be a frontrunner for the Fed Chair role, while weak US jobless claims data kept attention on a softening job market. The USD Index edged higher, despite a surge in continuing claims to their highest level since 2021.
The EUR lagged, marking the currency as one of the weakest G10 performers on the day. Amid soft sentiment and no strong regional catalysts GBPEUR rose by 0.70% on the day, after hitting the 2025 low earlier in the day.
*Daily move - against G10 rates at 7:00 am, 08.08.25
** Indicative rates - interbank rates at 7:00 am, 08.08.25
The obvious question from clients now is will GBP continue to climb higher, given markets are now forecasting less rate cuts? In the short term, as market recalibrate the value of GBP versus its peers, the answer is perhaps yes. But it is worth noting that whilst weaker demand and rising job losses could eventually take the heat out of prices, the near-term mix of sticky inflation and slowing growth feeds stagflation concerns. Add in the UK’s fragile public finances, and the currency remains under pressure from deep-seated structural headwinds, despite yesterday’s pop higher.
Read more about the Bank of England's interest rate decision here:
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