Pound Sterling Under Pressure vs EUR and USD as BoE Speeches to Clarify Dovish Shift

February 11, 2025 - Written by Frank Davies

STORY LINK Pound Sterling Under Pressure vs EUR and USD as BoE Speeches to Clarify Dovish Shift

Monday’s session on foreign exchange rate markets has been volatile for the third week in a row as more tariff news hits the headlines.

The pound sterling is slightly lower following last week’s BoE meeting and the dovish shift in voting patterns.

Both Governor Bailey and MPC member Catherine Mann are due to speak on Tuesday and are expected to provide more details on their dovish view.

This week’s trading got off to a volatile start. In the 5 minutes following the futures open on Sunday night, S&P500 futures dropped 0.6% and then swiftly recovered most of the move again in the next 15 minutes. By the time the US session opened on Monday, the S&P500 was nearly 0.6% higher.

Volatile Mondays have been a feature since President Trump started office as weekend news has often been market sensitive. Last week the threat of tariffs on Canada and Mexico caused a stir, and this week it is an announcement of 25% tariffs on steel and aluminium imports. Commodities are generally higher in response, led by a 1.5% rally in gold and oil. Meanwhile, the dollar is slightly higher in a continuation of last Friday’s rally following the strong jobs report which showed tightness returning to the labour market as unemployment dropped to 4.0% and wages increased 0.5%.

This week’s action could revolve around the US inflation report due for release on Wednesday. Tuesday will also be important as Fed Chair Powell will present the Semi-Annual Monetary Policy Report before the Senate Banking Committee in Washington DC. This is due to start at 10am ET with a prepared statement followed by Q&A.

Other currencies also have plenty drivers on the horizon. In the UK, BoE Governor bailey and Monetary Policy Committee (MPC) member Catherine Mann are due to speak on market matters. Unusually, Mann’s comments may be more important than the Governor’s.

BoE Dovish Shift in Focus

Last week’s 25bps rate cut from the BoE was not a surprise, but the pound was markedly weaker following the meeting due to the voting patterns of MPC members. As ING explains:

“Expectations ahead of the meeting...were that eight committee members would vote for the cut and that we’d see Catherine Mann, until now the arch-hawk, vote to keep policy unchanged. After all, she didn’t vote in favour of either of the prior two rate cuts and had been voting for hikes long after the rest of the committee had decided rates had gone high enough. That is until now.”

Mann not only voted for a cut, but for a 50bps cut. The reasons for this shift were not entirely clear.

“Though not directly attributed to Mann, the meeting minutes suggest that she saw a need to give a “clear signal” on where interest rates need to get to, whilst still recognising policy needs to stay restrictive for some time to come,” continue ING.

Mann's speech on Tuesday is expected to shed some light on why she flet the need to give a “clear signal.” There may be something significant behind such a large shift in view. This is perhaps a risk to the pound, and it is slightly lower again on Monday, although if it turns out to be nothing in particular it may lead to a recovery of some of the recent weakness.

EURGBP is trading around the 0.83 level and the threat of tariffs from the US are likely to weigh more on the euro than the pound as it is assumed the EU has more to lose from auto sales. This could keep the downwards pressure on the pair as it continues its descent from the 2025 high of 0.847. 0.822 support from the end of 2024 may be back in play if President Trump follows through with his proposed tariffs.

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TAGS: Pound Dollar Forecasts Pound Euro Forecasts