GBP is firmer versus USD however weaker in opposition to EUR. In our view, stagflation headwind within the UK threatens additional GBP depreciation versus EUR. The Financial institution of England (BOE) coverage fee determination (7:00am New York, 12:00pm London) and Governor Andrew Bailey’s press convention half an hour later take the highlight in the present day, BBH FX analysts report.
GBP weakens in opposition to EUR forward of key BoE determination
“The BOE is broadly anticipated to chop the coverage fee 25bps to 4.00% and reiterate its steering for ‘a gradual and cautious method’ to additional fee cuts. UK actual GDP contracted in April and Could, however stubbornly excessive UK underlying inflation will hold the BOE cautious. The main focus can be on the Financial Coverage Committee (MPC) vote cut up, and Financial Coverage Report (MRP).”
“On the final June 19 assembly, the MPC voted by a majority of 6-3 to maintain charges on maintain. Taylor, Dhingra, and Ramsden most popular to cut back the Financial institution Price by 25bps. Economists surveyed by Bloomberg predict a three-way cut up this time round: 5 for 25bps lower, 2 for maintain, and a couple of for 50bps lower. An excellent cut up between no change and a 50bps lower would assist the BOE’s cautious easing message and depart GBP broadly unaffected.”
“The MPR will embrace contemporary financial projections and a proper assessment of the previous yr’s quantitative tightening (QT). The BOE is predicted to flag that it plans to gradual the tempo at which it shrinks its bond holdings. Between October 2024 to September 2025, the BOE could have diminished its holdings of gilts by £100bn to £558 bn. Sustaining the present £100bn tempo of gilt runoff over the following 12-month interval danger pushing long-term gilt yields larger, as a smaller quantity of maturing bonds imply the BOE should promote a report £51bn of gilts.”
