GBP/USD Trades 1.3420 After BoE Holds Rates

The GBP/USD currency pair traded at 1.3420 on Friday, down 0.34% from the previous session but holding onto the 1.34 handle it reclaimed after the Bank of England's decision to hold interest rates at 3.75%. The pound gained 1.09% across July and sits 1.07% higher over twelve months.

The week saw a sharp structural change in the cable, with sterling strengthening after the Federal Reserve held off committing to a September rate hike. This led to a sell-off in the dollar and a subsequent grind higher for the pound. The Bank of England's decision on Thursday was exactly what economists expected - a 6-3 vote to maintain rates at 3.75%.

The underlying macro configuration is unusual, with UK gilt yields at G7 highs. Sterling is being paid to hold UK duration, but the problem lies in why this premium exists. It's not a growth premium, and debt servicing costs are the highest in the G10.