Bank of England in Wait and See Mode

November 20, 2024 - Written by Tim Boyer

STORY LINK Bank of England in Wait and See Mode

BoE in Wait and See Mode, GBP/USD Trapped Near 6-Month Lows Ahead of Inflation Data

The Pound to Dollar (GBP/USD) exchange rate has managed to hold above 6-month lows just below 1.2600 recorded late last week, but has struggled to make significant headway.

According to ING; “We see no reason for a large dollar correction at the moment, but equally not a clear catalyst for an advance.”

UoB commented; “GBP/USD is ready to resume its downtrend with the potential of further decline to 1.2565.”

UK inflation data, Bank of England (BoE) policy expectations and the potential nomination of the US Treasury Secretary by President Trump will be crucial short-term elements.

At this stage, the BoE has emphasised uncertainty and the need to wait and see what happens in the UK and global economy.

The UK inflation data will be released at Wednesday’s European open.

In comments on Monday, MPC member Greene maintained a cautious stance on inflation and interest rates.

According to Greene; “Services inflation hasn’t been coming down as quickly as I’d like to see. Wage growth is higher than what we would like to see for an inflation target of 2%.”

She added; “The risk of cutting too early or too aggressively is a greater risk than going a bit more slowly.”

In testimony to the Treasury Select Committee, MPC member Mann reiterated her opposition to the November rate cut, with notable concerns over the labour market while inflation risks were on the upside.

Governor Bailey stated that implications of higher labour costs will be a key element.

Recently appointed member Taylor gave some dovish hints and that, at present, he would be comfortable with rate cuts of 100 basis points over the next year.

Nevertheless, uncertainty was the key message.

Matthew Amis, investment director at asset manager abrdn maintains a cautious stance towards the Pound; "The Bank of England may well be continuing to signal gradual cuts, but the UK growth story will need to be more compelling for markets to shift."

US developments will also have a key influence on the bond and currency markets.

Looking at the Treasury Secretary appointment, ING commented; “A candidate with proven reliability will be well-received by the bond markets, while those with less experience – or perhaps a candidate that will offer less of a counterweight to some of President-elect Trump's plans – could see the long end of the US Treasury market sell-off and perhaps even soften the dollar too.”

MUFG commented; “The increasing likelihood of former Fed Governor Kevin Warsh as Treasury Secretary is reassuring for market participants as he could help to reign in some of the more disruptive parts of Trump’s policy agenda.”

It added; “The US dollar has already started to weaken as market participants have tentatively moved to price out some of the tail risk of a more disruptive tariff scenario for the global economy in the coming years.”

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TAGS: Pound Sterling Forecasts