Pound US dollar (GBP/USD) exchange rate retreats following BoE rate hold
Article updated 14:15, 20/6/2024
The pound US dollar (GBP/USD) exchange rate is falling this afternoon, following the Bank of England’s (BoE) latest interest rate decision.
The BoE left interest rates unchanged for a seventh consecutive time at 5.25% this afternoon. Markets interpreted the central bank’s forward guidance as largely dovish, which, coupled with yesterday’s easing consumer price index (CPI), reinforced expectations that UK interest rates would begin to fall at the BoE’s next meeting in August.
In turn, speculations of imminent monetary loosening from the central bank weigh heavily on the pound (GBP) a present, which has fallen by as much as a third of a cent against the US dollar (USD) during afternoon trade.
James Smith, Developed Markets Economist at ING, said:
‘Assuming the next inflation report in mid-July doesn’t contain any nasty surprises, we still think the Bank will vote for a rate cut in August.
Today’s meeting suggests that the BoE is in a similar mindset to the ECB, where it is getting more confident in its inflation forecasting ability and therefore feels able to look through temporary gyrations in underlying CPI data.’
Looking to the US, a smaller-than-forecast decrease in the number of initial jobless claims for the week ending 15 June lent the safe-haven USD some marginal support, despite an increasing appetite for risk.
Looking ahead, could a rebound in UK retail activity see Sterling recoup some of today’s losses?
At the time of writing, GBP/USD is trading at around $1.2682, down approximately 0.3% from today’s opening rates.
Original article continues below:
Pound US dollar (GBP/USD) subdued as markets await BoE vote
The pound US dollar (GBP/USD) exchange rate is trading without a clear direction this morning prior to the Bank of England’s (BoE) looming monetary policy meeting.
At the time of writing the GBP/USD exchange rate is trading at around $1.2700, virtually unchanged from this morning’s opening rate.
Pound (GBP) wavers ahead of BoE monetary policy meeting
The pound (GBP) is largely subdued this morning as markets await the BoE’s latest interest rate decision.
Markets widely expect the central bank to deliver a seventh consecutive hold on interest rates, keeping them at a sixteen-year high of 5.25%.
Arriving in the wake of the UK’s latest consumer price index, which eased to the BoE’s 2% target rate in May, concerns that domestic services inflation remains too high will likely see the central bank leave monetary policy unchanged.
Services, which accounts for 80% of the British economy, remains in a period of high inflation after cooling only marginally in May to 5.7%, rather than dipping to 5.3% as forecast.
Sanjay Raja, Chief UK Economist at Deutsche Bank, commented:
‘While calls for an imminent rate cut will grow, given headline CPI’s descent to 2%, there’s likely to be growing concerns around the stickiness surrounding services inflation.’
Because of this, markets will be particularly eager to assess whether any further policymaker divergence has taken place since last month’s BoE vote, which was split seven to two in favour of a rate hold.
Should the voting split indicate a growing preference for monetary loosening amongst rate-setters, GBP may tumble this afternoon.
US dollar (USD) stymied by Fed rate cut bets
The US dollar (USD) is wavering this morning ahead of the latest US jobs data, due for release this afternoon.
As such, a data-light morning leaves the ‘greenback’ mostly quiet against its major rivals, as shifting Federal Reserve interest rate cut expectations hamper USD exchange rates.
While policymakers maintain that the Fed requires further proof of US disinflation before it can reduce rates, the CME FedWatch tool shows an increased likelihood of a September interest rate cut following a dismal batch of US retail data this week.
Up from 61.5% last week, markets are now pricing in a 67% chance that the central bank will lower interest rates in the final month of Q3. The tool also indicates that one additional rate cut could occur in the fourth quarter of 2024, despite recent push back from Fed rate-setters.
Pound US dollar exchange rate forecast: BoE in spotlight
Looking ahead, GBP investors may remain reluctant to place any aggressive bets on the pound prior to the BoE’s imminent interest rate decision. Should the central bank’s forward guidance reinforce market expectations of an August rate cut, GBP could tumble later today.
Looking to the US, the latest initial jobless claims data is due for release this afternoon, for the week ending 15 June. A forecast decline could indicate that the US labour market remains steady, thereby lending USD some support.