British Pound:Bank of England Expected to Leave Rates Unchanged

The British pound continued to strengthen following the stronger than expected service sector ISM report.

Activity in both the manufacturing and service sector has accelerated, which has helped to boost rate hike expectations. The prices paid component of both of these reports have also accelerated. Even though the Bank of England is expected to leave interest rates unchanged on Thursday, the futures market is now pricing in another 25bp point rate hike in the third quarter and a slim chance of 6 percent rates by year end. Two rate hikes is still a stretch at this point especially with the GBP/USD hovering so close to 2.0. The longer the currency pair remains at that this level, the more it helps to reduce inflationary pressures.