Published by Global Banking & Finance Review®
Posted on August 5, 2025
2 min readLast updated: January 22, 2026
Add as preferred source on GoogleSterling strengthens against the dollar as traders anticipate BoE rate cuts. The BoE is expected to lower rates to 4% amid rising inflation and economic challenges.
By Stefano Rebaudo
(Reuters) -Sterling edged higher against the dollar and fell versus the euro on Tuesday, as traders expect the Bank of England to maintain its rate guidance at this week’s policy meeting.
The BoE is widely expected to cut its key interest rate to 4% from 4.25% on Thursday and to lower it once more before the end of the year, despite consumer price inflation rising to close to double the central bank's 2% target in June.
Traders priced in over a 90% chance of an easing move this week and 86 bps of rate cuts by December 2026.
The pound was up 0.05% at $1.3290 against the dollar.
The greenback rose against the euro and the yen, but remained within striking distance of Friday’s lows.
“Given the stagflationary character of the data, we expect ‘gradual and careful’ to stay as the main forward guidance, with a highly uncertain vote split,” said Citi.
“We expect this situation to remain until the autumn budget, after which contractionary tax increases, in our base case, should pave the way for sequential rate cuts.”
Britain borrowed more than expected in June, adding to speculation about the need for new tax hikes by finance minister Rachel Reeves later this year.
“We suspect that it (the BoE) will (maintain its gradual and careful rate guidance), although any change here would almost certainly be greeted by a bout of pound weakness,” said Enrique Diaz-Alvarez, chief economist at Ebury.
The British currency was last up 0.3% at 86.85 pence per euro. It fell to 87.69 pence last week, its weakest against the single currency since May 2023.
Yields on UK gilts snapped a 5-day losing streak on Tuesday, with the 10-year up 2.5 bps at 4.53%.
“Risks are two-sided: a faster or more pronounced loosening of the labour market could warrant cumulative or larger cuts, whereas sticky underlying (services) inflation and only gradual signs of labour-market slack could extend the pause between cuts beyond current expectations,” said Nikolay Markov economist at Pictet Asset Management.
(Reporting by Stefano Rebaudo; Editing by Bernadette Baum)
The Bank of England is widely expected to cut its key interest rate to 4% from 4.25% during this week's policy meeting.
The pound was up 0.05% at $1.3290 against the dollar but fell to 86.85 pence per euro.
Traders have priced in over a 90% chance of an easing move this week and anticipate 86 basis points of rate cuts by December 2026.
Factors include rising consumer price inflation and the need for potential tax hikes due to increased borrowing.
Risks are two-sided, with a faster loosening of the labor market potentially warranting larger cuts, while sticky inflation could lead to more gradual adjustments.
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