Sterling was on track for its biggest weekly gain against the dollar since mid-December on Friday, a day after the Bank of England held rates steady and eased bets on imminent rate cuts, while lower US yields weighed on the greenback.
The pound last rose 0.08% against the dollar at $1.2753 and was on track for a weekly gain of 0.4%, the most in seven weeks.
It stood at 85.29 pence per euro flat today, but the British currency would end the week stronger against the euro for the sixth week in a row.
Thursday’s Bank of England meeting was the biggest event for the pound this week. The outcome was largely as expected, with the BoE keeping rates steady and removing language from its statement about potentially tightening policy further if necessary.
However, Governor Andrew Bailey responded to suggestions that rate cuts were imminent.
He said it was too early to declare a victory and that bringing inflation back to the 2% target would not be a “finished business” as price growth was expected to pick up again. But he said there was a shift in the BoE’s thinking.
“For me, the most important question has shifted from ‘How restrictive should we be?’ to ‘How long should we maintain this position?'”. Bailey told a news conference.
The pound rose after the decision.
“This is a clear response to current market prices, which are now hard-coded into the Bank’s forecasts. We had recommended tactical longs on GBPs before the BoE’s decision, based on exactly what was delivered today,” BofA analysts said in a note.
Markets are currently expecting four 25 basis point rate cuts from the BoE this year, with a roughly 50% chance that the first will come as early as May.
“Despite the recent market turbulence caused by US regional banks, we continue to view the backdrop for GBP as favorable from both an interest rate and (volatility) perspective,” BofA said.
U.S. regional banks sold again on Thursday, adding to losses from a day earlier, as New York Community Bancorp reported increased stress in its commercial real estate portfolio.
The yield on the benchmark 10-year Treasury fell another 10 basis points, after losing about 27 basis points this week. The last reading was 3.891%, and the drop in yields hurt the dollar.
The dollar index, which tracks the unit against six peers, is set for its first weekly decline of 2024.
Investors on Friday also assessed a survey published by US bank Citi that showed the British public’s inflation expectations rose in January, possibly on concerns about shipping disruption in the Red Sea.