Following on from the Bank of England's surprising interest rate cut from 5.25% to 5% last week, we have been keeping a close eye on the aftermath and have highlighted the impacts in our key updates below for you:

Key Updates:

Political and Economic Volatility:

• British Pound (GBP):
  The Bank of England's recent interest rate cut from 5.25% to 5.00% on the 1st of  August, led to an immediate depreciation of the GBP against major currencies.
  
  💡BLK.FX Top Tip: A reduction in interest rates typically causes a surge of "hot money" outflows, as foreign retail investors become increasingly reluctant to buy or hold a currency as they are receiving lower returns on their money.
  
  
• Political uncertainties in the U.S. have increased due to President Biden's withdrawal from the presidential race and Kamala Harris stepping in as the Democratic candidate.
  
  
• The US dollar plunged at the end of last week after a weak non-farm payrolls report boosted bets on a coming rate cut from the Federal Reserve.
  
  
• China's economic struggles, including lower-than-expected manufacturing PMIs, led to the People's Bank of China implementing rate cuts, affecting global commodity currencies.

GBP

The recent interest rate cut by the Bank of England, aimed at stimulating the slowing UK economy by making borrowing cheaper and encouraging consumer spending and business investments, has significantly impacted GBP. As a result, Sterling has experienced a major move downwards. Specifically, GBP against the Euro has dropped from 1.19 to 1.16 due to the interest rate cut, combined with little movement in the Eurozone. Additionally, the past week has been challenging for both GBP and USD, leading to a fall in GBP USD. This decline reflects the market's reaction to the BoE's policy decision and broader economic conditions.

USD

Expectations of future U.S. interest rate cuts have weighed on the dollar, despite the likelihood that rates will remain relatively high due to persistent inflation. The Federal Reserve is expected to maintain rates above the 2-3% range, which should support the dollar in the long term. Interest rate futures suggest a floor between 3.0-3.25% by the end of 2025, while other major economies are projected to have lower rates. This difference will continue to influence the dollar's strength relative to other currencies. Major moves like the USD/JPY plunge and EUR/USD rise present interesting opportunities for the market. (Reuters)

EUR

In the last week EUR has strengthened against the USD primarily due to weaker-than-expected US Non-Farm Payroll (NFP) data, which triggered risk-off flows favouring the Euro. The EUR/USD pair broke through the 1.09 resistance level and extended gains into the 1.10 range. The market anticipates further rate cuts from the Federal Reserve, with 50 basis points expected in September, supporting the Euro. (forexlive)

Meanwhile, the EUR/GBP pair has traded above 0.8600, holding near three-month highs due to the relative stability of the Euro compared to Sterling. (FXStreet)

However, the ECB also hinted at possible rate cuts, adding complexity to future movements.

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