The pound sterling has soared to its highest level in the past 2.5 years against the US dollar. Great news for the bulls! The British pound owes its strength to the Bank of England’s decision to keep interest rates unchanged. The central bank stated that it would not rush into further monetary easing.

In response to the Bank of England’s decision, the GBP/USD pair surged, surpassing the landmark of 1.3300 for the first time since March 2022. At the same time, the yield on British government bonds went down. So, markets adjusted their forecasts regarding the extent of rate cuts by the Bank of England in 2024. According to updated forecasts, an overall reduction of 42 basis points is expected by December this year, down from 50 basis points before the bank’s meeting. The current situation indicates that the rate cuts will occur gradually and quarterly, Jordan Rochester, a senior forex analyst at Mizuho International, commented on the central bank’s decision.

The analyst predicts that the pound sterling will continue its rally against the US dollar. He reckons the GBP/USD pair will rise above 1.3400 by early October and hit 1.4000 by the end of 2025.

Let’s not forget that the British currency notched an important milestone on September 19. As a result, the pound sterling became the most successful currency among the G10 economies in 2024. Despite investors expecting another round of monetary easing from the Bank of England in November, sustained inflationary pressure is unlikely to ebb away in the UK. Market participants believe this will keep borrowing costs relatively high compared to other countries.