Pound Sterling trades lower due to escalating BoE dovish expectations

The Pound Sterling consolidates near 1.3470 against the US Dollar amid trade tensions between the US and China.
BoE policymaker Catherine Mann argues against further reduction in interest rates.
Traders raise bets supporting more than 50 bps rate cuts by the Fed in the remaining year.

The Pound Sterling (GBP) trades flat around 1.3470 against the US Dollar (USD) during the European trading session on Friday. The GBP/USD pair flattens even as the US Dollar Index (DXY) faces selling pressure, suggesting weakness in the British currency.

Sterling underperforms on fresh escalation in expectations that the Bank of England (BoE) will cut interest rates further this year. BoE dovish expectations accelerated this week after the release of the UK labor market data for the three months ending in August.

The employment data signaled that the jobless rate accelerated and the wage growth slowed down. The Unemployment Rate accelerated to 4.8%, the highest level seen since the three-month period ending in March 2021.

According to money market consensus, traders expect the BoE to cut interest rates by 46 basis points (bps) this year.

On the contrary, BoE Monetary Policy Committee (MPC) member Catherine Mann, an outspoken hawk, has argued against lowering interest rates further. Mann didn’t support further monetary expansion, citing that UK labor market conditions are weakening only at a moderate pace. “What has transpired is that the labour market has modestly loosened, but it is not falling off the cliff,” Mann said in an event in Washington on Thursday, Reuters reported.

Additionaly, BoE Chief Economist Huw Pill has also argued against reducing interest rates “too fast or too far” amid risks of inflationary pressures remaining sticky. “Must guard against cutting too far or too fast as there is a risk that self-sustaining inflationary dynamics embed in expectations” Pill said in a speech at the Institute of Chartered Accountants in England and Wales Annual Conference 2025 in London during London trading hours on Friday.

On the fiscal front, UK Chancellor of the Exchequer Reeves confirmed that the government is not going to increase the wealth tax in the upcoming Autumn Budget scheduled next week. However, she clarified that there would be further tax raises and cuts in public spending.