- The sterling pound slides from a maximum of three years in the middle of a modest rebound of the US dollar.
- The GBP/USD quotes about 1,3500, with a drop of almost 0.50% in the day.
- The strongest inflation data than expected in the United Kingdom last week reduce betting bets.
The sterling pound (GBP) moves downwards against the US dollar, going back from a maximum of three years, with the GBP/USD torque contributing around 1,3510 during the American session on Tuesday.
The slight correction in spot prices occurs as the US dollar finds support in a renewed commercial optimism between the US and the EU. The hopes of an advance in tariff negotiations between Washington and Brussels have raised the feeling of risk, providing modest support for the dollar after weeks of pressure for tax concerns and a cautious posture of the Federal Reserve (Fed).
That said, the broader strength of the sterling pound remains largely intact, backed by internal factors that have altered market expectations about the next movements of the Bank of England (BOE).
“While the recent strength of the pound is largely a history of weakness of the dollar, there are some idiosyncratic factors at stake,” said Michael Brown, senior strata of research in Pepperstone. “We had a much more aggressive May policy decision than expected by the BOE, and then, adding to that, we had inflation from the United Kingdom higher than expected last week, which has led the participants to continue reducing their bets on a BOE relief this year.”
Market participants are now valuing a lower probability of rates cuts by the BOE in the second half of 2025, especially after last week’s IPC data surprised up.
The Bank of England (BOE) cut its reference interest rate at 25 basic points to 4.25% at its May 8 meeting. However, the market assessment has been firmly adjusted in favor of a pause, with Reuters informing that 93.6% of the operators expect the Central Bank to maintain the rates without changes in the next meeting.
In the United States, new economic data published on Tuesday revealed that orders for lasting goods for April were at -6.3% from a growth of 7.6% in March, driven by a significant decrease in the requests for transport equipment, particularly Boeing. On the contrary, consumer confidence regained in May, with the Board Conference Index, rising to 98.0 from 85.7 in April.
Looking ahead, operators expect the FOMC minutes on Wednesday, the review of the GDP of the first quarter on Thursday and the April PCE data on Friday. Fed speeches throughout the week can also guide rates expectations. Meanwhile, the comments of BOE’s policies could further mold the perspectives for sterling pound.
FAQS Central Banks
Central banks have a key mandate that consists in guaranteeing the stability of prices in a country or region. Economies constantly face inflation or deflation when the prices of certain goods and services fluctuate. A constant rise in the prices of the same goods means inflation, a constant decrease in the prices of the same goods means deflation. It is the Central Bank’s task to keep the demand online by adjusting its interest rate. For larger central banks, such as the US Federal Reserve (FED), the European Central Bank (ECB) or the Bank of England (BOE), the mandate is to maintain inflation about 2%.
A central bank has an important tool to raise or lower inflation: modify its reference interest rate. In precommunicated moments, the Central Bank will issue a statement with its reference interest rate and give additional reasons of why it maintains or modifies it (cut it or the SUBE). Local banks will adjust their savings and loan rates accordingly, which in turn will make it difficult or facilitate that citizens obtain profits from their savings or that companies ask for loans and invest in their businesses. When the Central Bank substantially rises interest rates, there is talk of monetary hardening. When it reduces its reference rate, it is called monetary relaxation.
A central bank is usually politically independent. The members of the Central Bank Policy Council go through a series of panels and hearings before being appointed for a position in the Policy Council. Each member of that council usually has a certain conviction on how the Central Bank should control inflation and the consequent monetary policy. Members who want a very flexible monetary policy, with low types and cheap loans, to substantially boost the economy, while comprising with inflation slightly greater than 2%, are called “pigeons.” Members who prefer higher types to reward savings and want to control inflation at all times are called “hawks” and will not rest until inflation is located at 2% or just below.
Normally, there is a president who directs each meeting, has to create a consensus between the hawks or the pigeons and has the last word when the votes must be divided to avoid a draw to 50 on whether the current policy must be adjusted. The president will pronounce speeches, which can often be followed live, in which he will communicate the current monetary position and perspectives. A central bank will try to boost its monetary policy without causing violent oscillations of the fees, the actions or their currency. All members of the Central Bank will channel their position towards the markets before a monetary policy meeting. A few days before a monetary policy meeting is held and until the new policy has been communicated, the members are prohibited from speaking publicly. It is what is called a period of silence.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
