Markets participants will inadvertently focus their attention on the upcoming BoE’s interest rate decision later on today to get a grasp on how the monetary policy committee will decide to move forward with its policy plans and hence gauge the direction of the sterling in the foreseeable future.
Wider market expectations point towards a 5th straight, 25 basis points, rate reduction from the central bank, a scenario that currently amasses a 93% probability, whereas the remaining 7% sliver holds the view that MPC will decide to stand still.
As for the voting procedure of the nine members of the committee, a three-way split is expected (pause, hike, larger hike), reflecting the scattered opinions of policymakers once again, yet the scale will most likely tilt towards the extension of the bank’s easing cycle, despite persistent inflationary pressures.
Updated forecasts for inflation in the UK are expected to showcase an acceleration due to rising energy and food costs, which would under normal circumstances would have forced the bank to remain cautious and abstain from cuts, are now pushed aside, since signs of softness in the labour market started to pop up.
A quarter-point cut would drag down the overnight borrowing rate of BoE to 4%, its lowest level since 2023, and will most likely place pressure on the Pound, but could on the contrary aid UK equities rally from here, due to lowered borrowing costs.
Onwards, money markets expect another two rate reductions from the BoE by years end, setting a 3.5% policy rate at the start of 2026, could place additional pressure on the Pound in the upcoming months, marking the return to the $1.25 area against the greenback.
Technical Analysis
GBPUSD Chart – The Pound climbs to 1-week highs ahead of BoE’s rate decision
Resistance: 1.3420 (R1), 1.3600 (R2), 1.3800 (R3)
Support: 1.3160 (S1), 1.3000 (S2), 1.2870 (S3)
