The British Pound is facing downward pressure as many anticipate the BoE signaling a rate cut in its upcoming central bank meeting announcement.
The British Pound has been lackluster since the beginning of the week, with market players concerned that the Bank of England (BoE) will adopt a dovish stance in its interest rate announcement tomorrow. GBP/USD slipped below the 1.2500 mark during Wednesday's European session trading (May 8), while the EUR/GBP rally persisted, breaking through 0.8600 and marking its highest level in the past ten days.
Results from a Reuters survey indicate that all respondents — 63 economists — expect the BoE to maintain its current interest rates in tomorrow's policy meeting. However, there is a consensus among most respondents that the BoE will likely cut interest rates in the coming months, though opinions differ on the timing.
The median forecast suggests that 48% of respondents — 30 out of 63 economists — expect the BoE to initiate interest rate cuts starting in the third quarter. Meanwhile, 31 economists anticipate cuts in June, with the remainder predicting November.
"as soon as June or maybe more likely August; we slightly favor August, considering one of the key factors the Central Bank is monitoring is services inflation," explained James Smith, an economist at ING Financial Markets. "If services inflation remains stubborn, I believe that would lean towards August rather than June, but honestly, it's a tough call."
With the prospect of interest rate cuts drawing closer, the BoE is expected to adopt a dovish tone in its meeting announcement tomorrow. This speculation is weighing on the Pound against most major currencies.
"We think they're going to sharpen their communication and we think another member will vote for a rate cut," said Danske Bank FX analyst Kirstine Kundby-Nielsen, who expects two of the nine-member Monetary Policy Committee to vote to lower borrowing costs this week, "We think the market reaction will send euro-sterling higher and overall weaken the pound".
Current market data suggests that most traders expect the BoE to implement two interest rate cuts in 2024, starting in August, each cut expected to be at least 25 basis points.
The market could react strongly if the BoE delivers a more dovish signal, such as confirming interest rate cuts starting in June. Conversely, the market may trigger a Sterling rebound if the BoE indicates an intention to maintain higher interest rates for a longer duration.