The Pound Sterling (GBP) is floundering to retain rates over the market, as GBP/USD rates closed near the 1.2850 threshold last Friday. Amid the conflicting monetary policies issued by the US Federal Reserve (Fed) and the Bank of England (BoE), the GBP/USD pair is having difficulty gathering momentum.

Impact on GBP

Last week, the GBP/USD pair moved sideways slightly below 1.2850. This lack of upward momentum results from traders' inflated anxiety after the issuance of robust US economic data and central banks' hawkish policy decisions. The BoE uses a bearish stance by shrinking the key policy rate by 25 bps to 5.0%, aiming to slow down inflation. These events are shrinking investors' trust and lowering the Pound Sterling against its rivals.

Key Reasons for the Impact

1). UK economic data: Rising concern about high inflation rates and subdued economic growth in the UK is shaking the Pound heavily. Recent central bank policies and efforts to control inflation are impacting GBP growth expectations. The UK's economic health gives mixed signals, adding to a challenging background for the GBP/USD pair.

2). Policy Impacts of BOE: Market sentiment around the Bank of England's stand is vital to the GBP's devaluation. After slashed interest rates were announced, lower currency rates prevailed in the market, alarming investors and reducing the income from pound investments.

3). Global Economic Developments: Amid the global economic slowdown due to geopolitical tensions and international trade policies, the UK's economic indicators have raised concerns about the country's trade prospects. Market volatility and low returns are weakening the GBP.

Economic and Market Reactions

The integrated UK economic challenges, strong US economic performance and geopolitical tensions worldwide have evoked different economic and market sentiments in domestic and international markets.

Domestic Economic Reactions

In domestic markets, the Pound's depreciation, mixed growth signals, and persistent inflation have been pain points for investors and traders. While import prices are increasing, the lower margin and withdrawal of investments from the local market can adversely affect different income groups, with sluggish economic growth.

Global Market Reactions

The BoE's rate decisions in international markets alert investors to expected lower investment returns. Also, the lower Pound makes UK exports more competitive, which may raise the demand and price of the Pound, making it stand strong against the major currencies.

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