In European trading on Tuesday, the British Pound (GBP) continued its upward trajectory against a basket of major currencies, marking its second consecutive session of recovery from a three-month low against the US Dollar (USD). This resurgence was fueled by robust wage data, strengthening market expectations for another 0.25% interest rate hike by the Bank of England (BOE) last week and narrowing the interest rate differential between the UK and the US.
The GBP/USD pair advanced by 0.2%, reaching 1.2530, with an intraday low at 1.2498. This followed a 0.4% rally the previous day, marking the first positive movement in five days since the GBP hit a three-month low at 1.2445.
Notably, the British Pound had suffered a 1.3% decline against the US Dollar in the prior week, marking its first weekly loss in three weeks. This downturn was prompted by less optimistic statements made by Bank of England Governor Andrew Bailey.
Governor Bailey indicated that the BOE was approaching the conclusion of its current cycle of policy tightening, primarily as inflation began to exhibit significant signs of deceleration.
Wage Data Shines
Recent data from the United Kingdom revealed a noteworthy development in average wages, which surged by 8.5% in July. This marked the fourth consecutive monthly increase and the swiftest such rise since June 2021, surpassing initial estimates of 8.2%.
These wage figures underscore the inflationary pressures facing the policymakers at the Bank of England and reinforce the necessity of extending the present trajectory of policy tightening.
Anticipated UK Rate Hike
Market sentiment is now entirely pricing in a 0.25% interest rate hike by the Bank of England scheduled for the coming week, representing a 25-basis point increment.
Consequently, the interest rate differential between the United Kingdom and the United States is anticipated to narrow further, as the Federal Reserve is expected to maintain its current interest rates unchanged in the near term.
