The Bank of England Governor said that it is not necessarily going to raise interest rates as high as the market currently expects. As a result, GBP/USD crashed.

The pound sterling is one of the worst-performing majors this week. GBP/USD suffered its most severe slump in almost two months yesterday, following the Bank of England (BoE) Governor's remarks at the ECB Forum in Sintra. Furthermore, the pound's position has further weakened in today's trading due to market uncertainty about the effectiveness of the BOE's policies.

In a previous regular policy meeting, the BoE had raised interest rates by 50 basis points to 5.00%. At that time, market participants expected another interest rate hike to 6.25% by the end of this year, considering the UK's high inflation rate. However, BoE Governor Andrew Bailey dismissed these expectations in his recent statement.

Bailey emphasized that the BoE is committed to taking necessary measures but may not raise interest rates as much as the current market anticipates. He argued that UK inflation could decrease in the upcoming months as the impact of falling energy prices spreads.

"They've got a number of further increases priced in for us. My response to that would be: well, we'll see," said Bailey in the conference in Sintra, Portugal, on Wednesday (28/June).

Market participants received Bailey's remarks with skepticism. They are concerned about the potential negative effects of high-interest rates, and at the same time, they doubt the effectiveness of the BoE's interest rate policy in controlling inflation.

Today, market participants were shocked by the news of the potential bankruptcy of Thames Water, the largest water supply company in the UK. This financial crisis arises from Thames Water's substantial debts, which amount to 80% of its business value. Despite the continuous rapid increase in debt interest burden over the past year, the company faces a critical situation.

"It's a relatively quiet day from a data perspective, so overall I would not be surprised to see sterling somewhat licking its wounds today ahead of its next battle," said Stuart Cole, chief macro economist at Equiti Capital, cited by Reuters.

Cole thinks the pound sterling's fall is related to Bailey's remarks on the prospect of future interest rate hikes, which could hurt the UK economy. The financial problems suffered by Thames Water also "stoking fears about wider difficulties in the corporate sector as firms struggle to cope with the rapid increase in borrowing costs."

"The final nail in the coffin was (Federal Reserve chair) Powell, who basically confirmed another U.S. interest rate rise in July and possibly at least one more after that." said Stuart Cole.