Sterling surged above $1.25 on Tuesday, breaking its June record as traders turned bullish on the currency. Despite a Bank of England (BoE) policymaker suggesting rate cuts may soon be on the cards, traders seemed to have shrugged off the speculation and turned their focus on the currency’s potential.
The currency has been trading below 2016 levels, but that didn’t stop traders from betting on the currency’s future growth. The positive sentiment was fueled by a combination of factors, including hopes for a swift economic recovery as vaccine rollouts accelerate and expectations for higher inflation.
BoE Speculation Fails to Dampen Sterling’s Bullish Run
The Bank of England’s Monetary Policy Committee (MPC) member, Gertjan Vlieghe, said on Monday that he would consider voting for a rate cut if the economic data disappoints. His comments initially led to a sell-off in the pound, but the currency quickly rebounded as traders looked beyond the near-term risks and focused on the currency’s long-term prospects.
Despite the risk of a rate cut, traders seem to be confident that the BoE will do whatever it takes to support the economy, even if that means further rate cuts or additional stimulus measures. This sentiment has been bolstered by recent comments from BoE Governor Andrew Bailey, who said that the central bank is ready to use all the tools at its disposal to support the economy.
Vaccine Rollouts and Inflation Expectations Drive Sterling Higher
The positive sentiment towards sterling has also been fueled by hopes for a swift economic recovery as vaccine rollouts accelerate. The UK is one of the leading countries in the world in terms of vaccine distribution, and the government has set a target of vaccinating all adults by the end of July.
In addition to the vaccine rollout, expectations for higher inflation have also helped to drive sterling higher. As the economy recovers, inflation is expected to pick up, which could prompt the BoE to raise interest rates. This would make sterling more attractive to investors, as they would be able to earn higher returns on their investments.
In conclusion, sterling surged above $1.25 on Tuesday, breaking its June record as traders turned bullish on the currency. Despite the Bank of England’s Monetary Policy Committee member’s suggestion that rate cuts may soon be on the cards, traders seemed to have shrugged off the speculation and turned their focus on the currency’s potential.