Thursday’s statement from the Bank of England (BoE) indicates that there may be an interest rate cut coming soon, according to ING’s FX Strategist Francesco Pesole. He believes that an August rate cut is necessary, and this could cause the GBP/USD to drop below 1.25.
The recent increase in services inflation is seen as a temporary fluctuation due to yearly price adjustments, rather than a long-term trend. While the BoE has not made any firm commitments, if the next inflation report doesn’t have any surprises, an August rate cut is likely. ING’s base case scenario predicts three rate cuts in 2024, with the first one happening in August. This forecast is more dovish than the market’s expectation of two cuts. Currently, the market has priced in a 60% chance of a rate cut in August.
This outlook suggests a bearish trend for the sterling, with most of its weakness expected to be reflected in the GBP/USD pair. On the other hand, the political situation in the eurozone could delay a recovery in the EUR/GBP pair. ING anticipates that the GBP/USD pair will trade below 1.25 in the near future.
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In conclusion, the possibility of an August rate cut by the Bank of England could impact currency markets, particularly the GBP/USD pair. Investors should stay informed and cautious when navigating these uncertain times in the financial markets.