Pound Steadies Amid Rate Cut Anticipations and Bond Yield Dynamics

The British pound stabilized on Thursday after a sharp slide on Wednesday, following lower-than-expected inflation figures. The data drove expectations of imminent rate cuts by the Bank of England. Currently, sterling is marginally down, trading at $1.3339 against the dollar, after hitting a low of $1.3307.

September's stable inflation figures defied both market and Bank forecasts, suggesting inflation has peaked. This scenario has increased the likelihood of the Bank of England trimming interest rates by December. As a result, government bond yields, known as gilts, experienced a notable decrease, yet sterling didn't fall as much as expected.

Nick Rees from Monex Europe highlighted that lower interest rates could ease fiscal policy challenges for British finance minister Rachel Reeves, who is set to propose a new budget next month amidst high borrowing costs. Despite the recent steadiness in sterling, further weakening might occur, especially against uncertainties in French politics affecting the euro.