Pound rallies ahead of BoE rate decision

The UK pound jumped to an eight-day high ahead of Thursday's (4 June) Bank of England rate decision while weakness in the greenback aided the sterling move.

The GBP/USD rose to 1.5435, its highest since 27 May, from the previous close of 1.5340. The gains since Tuesday have pushed the pound off 1.75% from the near one-month low touched earlier this week.

The USD index has been on a downward trend since mid-March when it hit a 12-year high. It dropped to a low of 95.22 on Wednesday, moving further off the 27 May high of 97.78. On Thursday, the index traded near 95.30.

The BoE is unlikely to alter the bank rate from 0.5% or make any changes to the asset purchase target of £375bn.

With persisting deflationary challenges and downward risks to growth, the policy risks are skewed to the dovish side amid growing concerns that the US will be forced to postpone its first rate hike since 2006.

Technically, the pound is testing the 1.5500 region, a break of which will take the currency towards 1.5800 and then to new highs beyond the May peak to trace levels since November last year.