Pound Sterling weakens ahead of Bank of England Governor Bailey’s speech

Daily Currency Update

The Us Dollar index saw a fresh demand supporting the US Dollar and the British Pound fall as investors await the Andrew Bailey speech today, The weakness in the Pound is mainly driven by monetary policy divergences between the UK and US Central Banks. There has been some speculation on whether The Bank of England is to maintain its stance on further interest rate hikes, even as inflation and wage growth appear to be easing. According to the Office of National Statistics, the UK economy is on the brink of a technical recession as it was shrunk by the third quarter of 2023 by 0.1%. In comparison, and among The Group of Seven Economies, the UK's inflation is the highest. This adds to the pressures the Bank of England faces and the problems to bring inflation down and at the same time does not sink the UK economy. The US Federal Reserve, however, is expected to begin cutting interest rates as soon as March. Investors are expecting five rate cuts this year, but it will all come down to the relevant data and indicators. DeAnne Julius, a former member of the Bank of England's monetary policy committee has proposed a different view regarding interest rates in the UK and the potential problems the UK can face. Julius suggested the Bank of England would not be able to start cutting interest rates in 2024. She also mentioned that tensions in the Middle East could potentially lead to a new burst of energy price increases and provide a new inflation problem for the UK.