Sterling is relatively buoyant following yesterday’s Bank of England interest rate meeting.
Although they hinted at the possibility of interest rate cuts in their statement, they also warned markets this may be a little way off and that more evidence on inflation coming into line would be needed. It seems that committee members will need to see far more signs of disinflation, and probably an easing in wage pressures, before committing to cuts which has reduced market expectations for more immediate aggressive rate cuts and therefore supported the Pound.
The vote was a mixed one with six of the nine policymakers voting to keep rates on hold, two to raise rates and one to cut by 0.25%. This is the first time since August 2008, and the early onset of the global financial crisis, that BoE policymakers have voted to both raise and lower the base rate at the same policy meeting. They also revised their growth forecasts upwards (2024 from 0% to +0.25%, 2025 from +0.25% to +0.75% and 2026 from +0.75% to +1%). UK inflation is also seen falling to target in Q2 but expected to rise thereafter and not return to target until the end of 2026.
In other news, the USD made gains on Wednesday night as the Federal Reserve appeared to push back on a March interest rate cut. Although they indicated that cuts were on the way, Chairman Powell stated that the Fed’s base case scenario isn’t for a March cut and that more data on inflation would be needed. Initially, the USD rallied following this meeting, however it quickly reversed course yesterday, as markets continue to cling onto the possibility of a cut at the Fed’s next meeting and as worries increase over US regional banks and losses linked to commercial real estate.
As a result, the GBP/USD is trading towards the top of the range we’ve seen this year. The GBP/EUR is trading around half a cent off the high we saw last August. The EUR/USD has rallied a cent higher in the past 24hrs and trades at an 8-day high. All eyes will now turn to this afternoon’s US non-farm payrolls report for further clues on the state of the US economy.
