Barclays argues that the assurance of a high current interest rate alone is sufficient to support the value of the Pound Sterling exchange rate.

Market disappointment over the UK's interest rate decision last week briefly triggered a weakening in the value of the Pound Sterling against various major currencies. However, there doesn't appear to be any significant further selling pressure in GBP/USD and other GBP pairs. Analysts from the multinational bank Barclays even predict that the Sterling will remain resilient against the Euro and the US Dollar.

GBP/USD

In one of their recent reports, analysts from Barclays state that the high level of inflation in the UK continues to be supported by consumer demand and a robust labor market. As a result, the UK's inflation rate will remain elevated and prevent the Bank of England (BOE) from cutting interest rates. Such a situation is expected to support the value of the Pound exchange rate.

Several other analysts view the Bank of England's decision to raise interest rates by just 25 basis points last week instead of 50 basis points as a dovish move. Barclays' analysts acknowledge this but emphasize that the key point is the message of "higher for longer."

"Last week's 25bp hike by the MPC may have failed to trigger a break-out higher for the pound, but it added to already ample carry support," says Dong. "The MPC now explicitly acknowledges that policy is in restrictive territory, but more hikes are still likely."

Barclays now predicts that the BOE will raise interest rates one more time. They acknowledge significant uncertainty, as BOE's decision-making heavily relies on data. If the upcoming UK inflation data release on August 16th deviates from expectations, the prospects for further rate hikes could also diminish. Nevertheless, Barclays argues that the assurance of a high current interest rate alone is sufficient to support the Pound.

Barclays predicts that the exchange rate of the Pound against the Euro will remain within the same range as last year. Meanwhile, the Pound's exchange rate against the USD has the potential to increase moderately.