Pound drops as BoE’s Bailey says rate cuts could become ‘more aggressive’

Sterling took a hit on Thursday after Bank of England governor Andrew Bailey told the Guardian that the central bank could become a "bit more aggressive" in cutting interest rates as long as news on inflation continued to be good.

Bailey told the Guardian he has been encouraged by the fact that cost of living pressures had not been as persistent as the BoE thought they might be.

He said in an interview that if the news on inflation remained positive there was a chance the Bank could become "a bit more activist" in its rate-cutting approach.

Inflation currently stands at 2.2%, which is just above the BoE’s 2% target.

At 0740 BST, the pound was down 0.7% against the dollar at 1.3170.

Kathleeen Brooks, research director at XTB, said: "The pound was already selling off before Bailey’s comments, and GBP/USD is down more than 1% so far this week, it is down from $1.34 at the start of this week to below $1.31 this morning.

"It has found decent support at $1.3170, however, this has been a bruising week for the pound, and $1.35 seems like a mountain to climb from here."

She said that part of the pound’s selloff is due to external factors.

"As geopolitical risks in the Middle East have risen, the US dollar has caught a bid. The currencies that were most extended versus the USD have sold off rapidly, as investors have sought the safety of the USD.

"Hence, the pound and the yen were in the sellers’ sights, as the markets scrambled to buy dollars. The pound is still the best performing currency in the G10 FX space so far this year, thus, if tensions escalate further, then we could see another leg lower for GBP/USD."