GBP/USD: Sterling Rises to 2.5-Year High of $1.3330 on Bank of England Rate Decision

British currency soared against US dollar after UK central bank kept rates steady in marked shift from the Fed’s course.

• The GBPUSD pair shot sharply higher on Friday, extending an impressive three-day run fueled by developments on both sides of the Atlantic. In the UK, the Bank of England decided on Thursday to keep the interest rate flat at 5%, pushing back against expectations of a trim. The sterling rose to its highest level against the dollar in two and a half years, hitting $1.3330 this morning, up 180 pips, or 1.4%, in the past three sessions.
• Stateside, the Federal Reserve kicked off its rate-cutting campaign after raising rates to a 23-year high and keeping them there for a few months. Jay Powell, Fed boss, announced on Wednesday that the US central bank has decided to cut rates by half a point and is looking to chop them by a further half-point cut by the end of 2024. Once markets realized the implications on the US currency, they moved to offload their dollar holdings.
• The British pound is having a good year. It’s up more than 5.5% against a weakening greenback since the start of trading in January. What’s the outlook? The sterling’s moves largely hinge on the direction of interest rates in the UK. Bank of England Governor Andrew Bailey is optimistic that rates will continue to move lower, after the first cut in August. “It’s vital that inflation stays low, so we need to be careful not to cut too fast or by too much,” Bailey said.