Sterling recovers despite interest rate cut

Max Wienke, analyst at investment platform eToro, says: “The Bank of England has cut interest rates again by 25 basis points, bringing them down to 4.75%. Yet, overshadowing this positive news is yesterday’s re-election of Donald Trump. With his uncompromising trade rhetoric, Trump is fuelling uncertainty which may threaten the already fragile economic recovery in the UK.

“Following the rate cut, the British pound initially recovered, rising back above 1.29. Markets have not yet fully priced in the effects of Trump’s victory yesterday, but volatility has notably eased. A few minutes after the decision, the GBP/USD exchange rate was 0.41% above yesterday’s closing price.

“Trump’s re-election could present a tough test for the pound. His promise to sharply increase U.S. tariffs raises the risk of higher inflation and could push up interest rates — a dynamic likely to strengthen the dollar and pressure the pound. Next week’s third-quarter GDP data could set the tone for future rate decisions. If UK economic growth continues to lose momentum, inflationary pressures may ease, paving the way for further rate cuts — a scenario that could place additional pressure on the pound.”