Pound to Dollar Forecast: GBP Under Pressure as BoE Signals Cuts Ahead

– Written by


Frank Davies

STORY LINK Pound to Dollar Forecast: GBP Under Pressure as BoE Signals Cuts Ahead

The Pound to Dollar exchange rate (GBP/USD) has come under renewed pressure as a knife-edge Bank of England decision collides with rising UK political uncertainty, reviving downside risks for Sterling just as markets begin to price earlier interest-rate cuts.

A sharply divided Monetary Policy Committee and leadership speculation surrounding Prime Minister Starmer have unsettled investors, leaving GBP/USD vulnerable near key support levels amid broader FX volatility.

GBP/USD Forecasts: 10-Day Low

The Pound to Dollar (GBP/USD) exchange rate was subjected to heavy losses after the Thursday open amid UK political fears.

After a tentative recovery, there was a fresh U-turn following a dovish Bank of England policy decision with GBP/USD sliding to 10-day lows below 1.3550 before a recovery to 1.3590 as wider FX volatility spiked.

ING commented; “Today’s dovish communication from the BoE has added to a softer pound – already under pressure from local politics.”

A sustained break below the 1.3550-70 support area would risk further losses.

The dollar secured wider gains amid weaker equities, but then retreated after a higher than expected figure for US jobless claims.

ING pointed to underlying market stresses; “A burgeoning sell-off in US tech stocks and ongoing volatility in the metals markets are providing many cross-currents for FX.”

The Bank of England (BoE) Monetary Policy Committee (MPC) held interest rates at 3.75% following the latest policy decision, in line with strong consensus forecasts.

There was, however, a very narrow 5-4 vote for the decision as Dhingra, Taylor, Ramsden and Breedon voted for a further 25 basis-point cut to 3.50%.

The majority commented that further evidence was needed on wages and inflation before having confidence in another cut.

Bailey and Mann, however, had greater confidence in the inflation outlook which suggested that they were very close to backing a cut at this meeting.

According to the dissenters, inflation risks had declined further and that policy was too restrictive which justified a further cut.

There was some relief in the bond market with the 10-year yield retreating to around 4.53% from 4.58% earlier in the session.

Following the decision, markets are pricing in 50 basis points in cuts this year compared with 35 basis points ahead of the latest decision.

According to MUFG; “It certainly looks like we could get a cut as early as the next policy meeting.”

Danske Bank Analyst Kirstine Kundby-Nielsen commented; “I think it will be pretty tight whether it will be a March or April cut, but I think the point is that, prior to this it was priced that we would see only one more cut, but now two could definitely be in play.”

According to Schroders senior economist George Brown; “Today’s rate decision was seen as a foregone conclusion, but the Bank’s close vote to hold rates suggests cuts are not a matter of if, but when.”

He sees scope for Governor Bailey to back one or two cuts over the next few months.

Nevertheless, he added; “However, the Bank will have to act soon if it intends to cut, before that window closes and the opportunity for further easing slams shut in the second half of the year.”

Political difficulties for Prime Minister Starmer have also undermined the Pound amid concerns over a challenge on Starmer which could jeopardise the position of Chancellor Reeves.

BBH commented; “GBP and gilts plunged, driven by UK political uncertainty. Prime Minister Keir Starmer is facing intense leadership speculation over his decision to appoint Peter Mandelson as US ambassador, despite knowing about his connection to Jeffrey Epstein.”

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TAGS: Pound Dollar Forecasts