Pound Sterling Hits Three-Year High as BoE Rate Cut Expectations Ease

Pound Sterling Hits Three-Year High Near 1.3600 on Strong UK Data and Weaker US Dollar

The Pound Sterling surged to its highest level in three years against the US Dollar, reaching around 1.3600 early this week. This rally was driven by stronger-than-expected UK economic data and shifting investor expectations about the Bank of England’s (BoE) monetary policy.

Recent UK figures showed headline inflation rising robustly to 3.5% year-on-year in April, up from 2.6% in March. Meanwhile, inflation in the services sector—a key focus for BoE policymakers—increased to 5.4%, marking a significant acceleration. Retail sales also surprised on the upside with a 1.2% monthly gain, well above forecasts of 0.2%.

These strong economic signals have led markets to reconsider the likelihood and timing of BoE interest rate cuts. According to Reuters, futures markets now price in just one rate cut of 25 basis points for the remainder of 2025, with a 50/50 chance of a second.

Meanwhile, the US Dollar remains under pressure amid ongoing uncertainty from US President Donald Trump’s fluctuating tariff threats on imports from the European Union. The lack of clarity has weighed on safe-haven demand for the Greenback, benefiting the Pound.

As a result, GBP/USD extended gains at the start of the week, capitalizing on both domestic UK strength and external US Dollar weakness.