FX.co ★ Pound Climbs to Six-Week High

The British pound has strengthened beyond $1.335, reaching its highest level since October 22. This rise is buoyed by investor anticipation of an imminent rate cut from the Federal Reserve, alongside positive UK PMI data and budgetary optimism. Currently, market sentiment indicates around a 90% likelihood that the Fed will implement a 25 basis points reduction this Wednesday, amid predictions for an additional two to three cuts the following year, reflecting ongoing signals of a cooling labor market.

In the UK, the Bank of England is experiencing increasing internal divisions ahead of its December 18 meeting. Four members advocating for tighter monetary policy express concern about persistent inflationary pressures. In contrast, more dovish policymakers believe that economic growth is slowing and the labor market is becoming more flexible. Governor Bailey is anticipated to be the deciding vote, with markets similarly estimating a nearly 90% probability of a rate reduction to 3.75%. Further influencing forecasts, the OECD recently projected that the BoE would proceed with two more rate cuts, reaching 3.5% by June, before halting its cycle of monetary easing.