GBP/USD extended its rise from Wednesday's 3-week low after the ECB's expected 25bp rate reduction, and is likely to drift higher as traders position for the Fed's widely anticipated 25bp cut on Sept.
18 as the BoE is seen keeping policy steady until its November meeting.

STIR markets currently price a significant widening of rate spreads between the U.S and UK, which top out at a 85bp by December 2025.

The problem for sterling bulls may come from recent successes in bringing inflation down toward the BoE's 2% target.

The significant reduction in price growth may provide a window for the BoE to quicken the pace of rate cuts in an attempt to jumpstart the UK economy.

While the market is pricing a subdued tack of UK rate cuts, it is worth remembering that the BoE has kept constant watch on growth, and even when inflation was much higher and rate hikes were clearly in order doves had voted to hold rates rather than risk stalling growth.

With inflation moving toward target, and sterling near 2024 highs, bulls may be wise to temper their enthusiasm in case the BoE shifts to a more dovish tack, which would send the pound careening lower toward early August lows by 1.2666.

For more click on FXBUZ