In contrast to the clear "dovish" tone of Federal Reserve Chairman Powell, the market perceives Bailey's comments as seemingly hawkish... On Tuesday, the British pound rose to its highest level against the US dollar since March 2022, as investors anticipated that the Fed would begin cutting interest rates faster than the Bank of England.

The pound sterling appreciated by 0.4% against the US dollar, reaching 1.3246, before falling back slightly, but the currency pair is still on track to achieve its best monthly performance since November last year.

Late last week, the top policymakers of the Fed and the BoE presented divergent views on the interest rate outlook.

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At the Jackson Hole central bank symposium, Powell indicated that the "time has come" for the US to cut interest rates, while BoE Governor Bailey warned that it is "too early to declare victory over inflation."

Kyle Chapman, a foreign exchange analyst at Ballinger Group, a currency brokerage firm, said, "The stark contrast between Powell's green light for rate cuts and Bailey's more cautious stance at Jackson Hole succinctly summarizes the factors supporting the pound's strength."

In recent months, the pound has been buoyed by stronger-than-expected economic data, as well as market optimism that the new government will usher in a period of political stability and growth-promoting planning reforms.

In August, the UK's private sector activity grew faster than expected, reaching the highest level in four months.

Derek Halpenny, the head of research at MUFG, said that the second quarter's economic growth of 0.6% was also "far above" market expectations.

However, service sector inflation, closely watched by the Bank of England, remains stubbornly above 5%.

Geoff Yu, a foreign exchange strategist at BNY Mellon, said that the UK's annual wage growth also reduces the urgency for the BoE to cut interest rates.

In the three months through June, UK wages grew at the slowest pace in nearly two years, at 5.4%, but the unemployment rate unexpectedly fell, indicating that the labor market remains robust.

Uncertainty about the UK's economic outlook led to a split among BoE policymakers when they cut interest rates in early August, marking the first rate cut by the BoE in over four years.

Traders are betting that by mid-next year, the BoE will cut rates by one percentage point.

In contrast, investors expect the Fed to cut rates seven to eight times by mid-next year, with each cut being 25 basis points.

Traders are currently divided on whether the Fed's first rate cut next month will be 25 basis points or 50 basis points.

Bailey released some encouraging news about the UK's inflation outlook last Friday, stating that "second-round inflation effects appear to be smaller than expected."

Capital.com, a trading platform, said that the upcoming data on the Fed's preferred inflation indicator could play a key role in determining whether the pound can maintain its upward trend.

Daniela Sabin Hathorn, an analyst at Capital.com, said in a report that if the US PCE data released on Friday consolidates the expectation of a rate cut by the Fed at the September meeting, the pound could appreciate further.

However, she said that if the data is stronger than expected, the pound could reverse some of its recent gains.