Sterling Slips Ahead of BOE

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GBPUSD, H1

By: Stuart Cowell

Sterling has taken a rotation lower into the BoE announcement, with the currency racking up losses of over 0.4% against the Dollar and Euro, and most other peers. Cable has printed a fresh three-day low below 1.2480 while EURGBP has lifted into three-day high terrain above 0.9000. The UK currency had been bid earlier in the week after a top-level videoconference on EU-UK trade injected fresh intensity into the negotiations, though market participants are now turning their attention to the BoE policy, with the Monetary Policy Committee announcing later today following a two-day meeting. The BoE’s policy review comes with UK May CPI having ebbed to a rate of just 0.5% y/y, a four-year low, and extending a disinflation trend after recording 0.8% y/y in April. The data will have been well anticipated by policymakers, which have already implemented crisis response measures as a consequence of the coronavirus pandemic.

The central bank is likely to keep its powder dry and leave policy settings unchanged at its announcement, but will accompany this with unambiguously dovish guidance, including, it is expected, keeping open the possibility of negative interest rates — hence the weakness in Sterling pre-announcement. The possibility of going negative with interest rates is pressuring the Pound, along with the backdrop of flagging global stock markets, to which the UK currency has established a strong positive correlation with during the pandemic era so far.

Announcement is imminent, at 11:00 GMT.


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