Pound Steady After BoE Flags AI and Debt Risks

Sterling traded in a narrow range against the dollar and the euro after the Bank of England published its biannual Financial Stability Report. The pound held near $1.27 against the greenback and stayed around 0.855 against the euro. The report flagged risks from AI adoption in finance and elevated corporate debt levels. It did not change the outlook for interest rates.

The BoE said the financial system could face disruption if AI models fail or are misused. It also pointed to the vulnerability of companies with high leverage should borrowing costs stay higher for longer. The assessment was broadly unchanged from the previous report, traders said. The central bank added that UK lenders had enough capital to absorb losses in a severe recession, including a 20% house price fall.

Two-year gilt yields edged down less than 2 basis points after the release. Sterling barely moved. Traders said the market had already priced in these structural risks. The focus remains on the August rate decision and the next inflation print.

The report's balanced tone meant no repricing of the UK rate path. That left the pound's direction tied to the dollar and the euro. The GBP/USD profile shows the pair stuck in a $1.26–$1.28 range since early June. Euro-sterling has been anchored near 0.855 for two weeks.

For sterling traders, the Financial Stability Report is a second-order event. The main drivers remain the Bank of England's rate stance and the UK inflation outlook. The forex market analysis section covers these macro factors in detail. A shift in the BoE's rate message at the August meeting would affect the pound more directly, traders said. The next scheduled policy update is the August Monetary Policy Report, which will include new growth and inflation forecasts.