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The Bank of England does not play political games and will not lend a hand to the ruling party. Meanwhile, lowering the repo rate to 5% from 5.25% is unlikely to save the Conservatives from defeat. Let’s discuss these topics and create a trading plan for them British pound against the US dollar.
Weekly fundamental forecast for the British pound
The UK has become the first country to return inflation to the 2% target, but the Bank of England will not cut its repo rate at its June meeting. The Bank of England has the Prime Minister to thank for keeping borrowing costs at 5.25%. With parliamentary elections scheduled for July 4, Rishi Sunak has ruled out the possibility of launching monetary expansion before then. On the one hand, the central bank does not play political games or side with conservatives. On the other hand, a 25 basis point interest rate cut is unlikely to save the Conservatives from defeat.
While the slowdown in US consumer prices has hit the US dollar hard, the drop in UK CPI growth from 2.3% to 2% in May will not hurt the pound. Contrary to Bloomberg forecasts, stubborn services inflation remains above 5.5%, pushing the economy higher British pound against the US dollar Top quotes. After the index rose to 5.7%, the derivatives market reduced the probability of the Bank of England easing monetary policy in August from 50% to 30%. The estimated size of monetary expansion in 2024 decreased from 50 to 44 basis points.
Inflation changes in the UK
Source: Bloomberg.
At the beginning of the year, the derivatives market expected the world’s leading central banks to implement five or six monetary easing measures in 2024. Today, central banks expect to implement one or two of them. The pound rose on expectations that the Bank of England will be the slowest to cut interest rates due to rising inflation. It strengthened against most major global currencies thanks to a stronger-than-expected economy and investor confidence in Labor’s victory in the general election. In the first quarter, UK GDP rose unexpectedly by 0.6%. It is expected to slow to 0.2% in the second quarter, although another surprise is not unlikely. Much will depend on retail sales and business activity data.
Bets on central banks’ interest rates
Source: Bloomberg.
As for the Bank of England’s June meeting, investors will traditionally be looking for hints from the central bank about the timing and scale of monetary expansion. Two out of nine members of the Monetary Policy Committee voted in favor of lowering the repo rate to 5% in May. If there are more doves this time, it will deal a blow to Yemen British pound against the US dollar Husband. Markets will await clarification from Andrew Bailey, who previously said the moment to ease monetary policy is near.
Labour’s election victory is clear, but if it becomes unconditional, as is the case in Mexico, sterling risks sharing the fate of its Mexican counterpart. Concerns about this have investors hedging against British assets and the risk of a currency collapse. Against this background, GBP/USD prices are falling.
Weekly trading plan for GBP/USD
The Bank of England’s reluctance to act is unlikely to help sterling, as the regulator is expected to do the same as the Fed. Conversely, if the Bank of England prepares to take a more dovish role than markets expect, the pound’s failure to return above 1.2715 will signal that the bulls are losing their grip. Against this background, the currency can be sold with targets at 1.264 and 1.259.
GBPUSD price chart in real time mode
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