GBP hits seven-week lows. Overview for 25.08.2023

The British pound sterling paired with the US dollar hit its lowest point in seven weeks. The current GBPUSD exchange rate stands at 1.2560.

The market is actively reassessing its positions regarding the future actions of the Bank of England. Notably weak PMI statistics revealed that the country's economy will not withstand any further tightening of monetary conditions. It may well be that the BoE will not have to raise the interest rate to the extent initially projected to bring inflation to target levels. With the rise in product prices currently at the slowest pace since 2021, it is acting as a natural constraint on inflation.

From December 2021 until the present day, the Central Bank has raised the interest rate 14 times, bringing the rate to a level of 5.25 per cent per annum. This stands as the highest point in the last 15 years.

Next month, the rate will increase to 5.50%. However, the likelihood of the rate moving further up towards 6.00% is rapidly diminishing.

As a result, the Bank of England is nearing the end of its aggressive interest rate hike cycle. This is driving the pound lower.