The pound recovered slightly on Friday, following a significant drop against the dollar on Thursday. The drop came after U.S. inflation data exceeded expectations, causing concern among investors. On Friday, sterling rose by 0.1% to $1.2178, after falling by 1.1% the previous day.
Similarly, the pound saw a slight increase against the euro, rising by 0.1% to 86.40 pence. However, on Thursday, it had fallen by 0.3%, marking its largest one-day fall in three weeks.
The upcoming release of data next week is expected to provide insight into the Bank of England’s future actions regarding interest rates. Analysts from Bank of America believe that while the Bank of England may not be able to assist the pound in the short term, a “high for longer” policy could help sterling strengthen against the euro in the future, with a forecasted exchange rate of EURGBP at 85 pence.
The Bank of England has faced challenges in curbing inflation due to persistently high inflation rates and record wage growth resulting from a tight labor market. Despite efforts to stabilize consumer prices, the United Kingdom still has the highest inflation rate among G7 countries, while projections from the International Monetary Fund indicate that next year’s growth will be the slowest.
In August, the country experienced better-than-expected growth, although it remained modest at 0.2%. Richard Snow, a strategist at DailyFX, suggests that upcoming UK unemployment and inflation data next week could have an impact on the pound. He also notes that the UK has recently seen a slight easing in the job market, and the IMF’s World Economic Outlook has highlighted challenges to growth in the coming year.
Currently, money markets indicate that traders believe UK interest rates are close to their peak, with a 50/50 chance of another rate rise in the Bank of England’s current policy cycle.
More detail via Investing.com UK here… ( Image via Investing.com UK )