Pound Holds Ground While Euro Slips Against Dollar
London: 18 December 2023 (TraderMade): Sterling (GBP) maintained its footing against the dollar (USD) on Monday, despite a slight dip versus the euro (EUR), after two consecutive days of gains. The reason? Investors are betting on UK interest rates remaining higher than most other major economies in 2024.
The Bank of England (BoE) threw cold water on market expectations of an early rate cut this year, signaling a slower pace of easing- compared to the European Central Bank (ECB) and the US Federal Reserve (Fed). This stance boosted the pound, as investors favor currencies backed by higher rates.
The GBPUSD pair declined by 0.136% to 1.26569 at about 12:24 PM GMT, while the EURUSD pair rose by 0.153% to 1.09121.
The contrast in rate projections is stark: While markets expect the ECB and Fed to cut rates as early as March, the BoE is delaying cuts until June or later. This is due to stubbornly high UK inflation, currently at 5.7%, compared to 3.6% in the eurozone and 4% in the US.
In a nutshell, Sterling maintains its advantage against the dollar, fueled by expectations of higher UK rates compared to other major economies- while the euro weighs on the pound due to differing rate trajectories.
