The British pound has dropped to a two-week low following dovish comments from Bank of England Governor Andrew Bailey. Traders are increasingly betting on a rate cut by the Bank of England, with expectations for a 25 basis point reduction in November fully priced in by the currency markets. The probability of an additional cut in December has increased from 40% to 70%.
The pound experienced a decline of 0.8%, reaching 1.3166, marking three consecutive days of losses. Bailey indicated that if inflation data continues to be favorable, there could be a more aggressive rate-cutting approach.
Despite having priced in anticipated rate cuts in both the Eurozone and the U.S., traders have been hesitant to significantly increase bets on the Bank of England's easing, mainly because UK policymakers have emphasized gradual policy relaxation. According to Valentin Marinov from Crédit Agricole, these dovish comments might reduce the pound's attractiveness related to interest rates, a key support for GBP. Marinov suggests that the best days for the pound might be over, noting its overbought status against the dollar and euro.
