Sterling rose in European trade on Tuesday for the second session against the dollar away from five-week lows, with the currency preparing to trade above $1.27.
Current gains are expected to be short-term as sterling faces persistent political risks due to elections in the UK and France, while the Bank of England prepares to cut interest rates in August.
The Price
The GBP/USD pair rose 0.1% today to 1.2699, with a session-low at $1.2680.
The pair rose 0.35% on Monday, the first profit in three days away from five-week lows at $1.2622.
The pound lost 0.35% last week against the US dollar, the third weekly loss in a row amid concerns about the UK-US interest rate gap.
The BOE
Last week, the Bank of England voted to hold interest rates unchanged at 5.25% for the seventh straight meeting, while issuing guidance on an upcoming 0.25% rate cut.
UK Rates
The odds of an August UK 0.25% interest rate cut rose to 60% following the latest BOE policy meeting, with the markets expecting two interest rate cuts overall this year.
Sterling Outlook
Bank of America’s forex analysts noted that the BOE’s weak position dragged the pound lower.
They believe the BOE is now likely to cut interest rates twice this year, which might undermine the pound against the dollar.
However, other analysts note that a rate cut in August will not be unanimous as hawks maintain their concerns about high profits and services prices.
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