Sterling Hovers at $1.33 Ahead of BoE Policy Decision
The British pound, or the sterling, hovered near $1.33 as markets awaited the Bank of England’s upcoming policy decision. Investors and market analysts are pricing a 25 basis point rate cut to 4.25% with the current dynamics and general sentiment across the market, with a focus on key data and forming a trend.
Investors are also watching for the bank’s updated economic forecasts, which could signal whether further cuts are likely. Some analysts believe the BoE may lean toward a more aggressive easing path in response to global risks, especially those linked to President Trump’s new tariffs, which have heightened fears of a global slowdown.
Nevertheless, the UK is seen as relatively shielded from US tariffs compared to regions like China or the EU, as the US ran a $12 billion goods surplus with Britain in 2024.
Meanwhile, the Federal Reserve is expected to hold rates steady on Wednesday. On the trade front, uncertainty persists around US-China relations. Trump said China may want a deal but gave no timeline, while Beijing indicated a willingness to talk if the US removes tariffs first.
Sterling continued to recover lost ground last week following the sell-off in the first half of last month triggered by United States President Donald Trump’s “Liberation Day” tariffs announcement of April 2, said MUFG.
At the worst point, EURGBP hit a high of 0.8738 on April 11 but briefly dropped back below the 0.8500 level last week, noted the bank. The GBP has underperformed over the past month alongside the other high-beta G10 currencies of Norway (NOK) and Australia (AUD).
The broad-based loss of confidence in the US dollar (USD) has still resulted in cable rising back to the highs from last September at just over the 1.3400 level, which currently represents an important resistance level standing in the way of further upside, pointed out MUFG.
The GBP has been hit harder recently by the sharp jump in financial market volatility triggered by the initial fallout from President Trump’s tariff plans. It has triggered the unwinding of carry trades that reinforced the sell-off in higher-yielding currencies such as the sterling.
At the same time, unfavourable external conditions have made it more challenging for countries that rely more on external financing, such as the United Kingdom, whose current account deficit totaled just under 3% of gross domestic product last year.
One way for the BoE to signal that it’s more open to the possibility of cutting rates again sooner, perhaps at the following MPC meeting in June, would be to drop guidance that “gradual” further withdrawal of monetary policy restraint is appropriate.
The BoE could also indicate that the risk assessment of meeting its inflation target has shifted to the downside, although it’s likely to be wary of providing strong guidance while uncertainty over the outlook remains so elevated.
A more dovish policy update from the BoE this week poses downside risks for the GBP this week, and could deliver a setback after the recent rebound, according to MUFG. #Sterling Hovers at $1.33 Ahead of BoE Policy Decision#
