GBP/USD: BOE set to hold rates at 5.25%; focus shifts to growth and inflation outlook

The Bank of England is widely anticipated to maintain its benchmark interest rates at 5.25% in its upcoming policy announcement scheduled for next Thursday, November 2. Market experts suggest that the central bank’s decision to hold rates steady is already factored into the market, with attention now turning to the accompanying monetary policy report.

Following a surprising 5-4 split among the internal members in favour of a pause during the September meeting, analysts believe that the Bank of England might have reached its terminal rate. The markets have fully priced in this anticipated rate pause, signalling a momentary halt in the series of hikes witnessed earlier.

Despite the Bank of England’s earlier projections falling short due to unexpected drops in inflation, the upcoming report is likely to show a slight upgrade in the inflation outlook. This shift is primarily attributed to a weaker currency, rising oil prices, and a revised lower rate path. However, the growth outlook might face a downward revision due to disappointing Gross Domestic Product (GDP) and Purchasing Managers’ Index (PMI) data, indicating potential challenges in the economic landscape.

Chief Economist Huw Pill’s table mountain perspective suggests that while the Bank of England might maintain its tightening bias, the focus now lies on the duration of peak rates. Pill’s viewpoint indicates that the bank could be inclined towards a longer period of stable rates, marking a potential end to the series of rate hikes.

As the announcement approaches, GBP traders are expected to remain cautious, with the overall market sentiment indicating a possibility of a weaker sterling outcome. The Bank of England’s decision and the insights provided in the accompanying monetary policy report will be closely monitored by investors and economists alike.

The British pound (GBP) continues its downward spiral against the U.S. dollar (USD) amid a prevailing bearish trend that has persisted since mid-July.

Earlier this week, the cable made a valiant effort to breach the resistance level at 1.2275. However, this attempt was swiftly thwarted, causing the currency pair to reverse its course and plummet further. Analysts attribute this pullback to the prevailing dominance of sellers in the market. The greenback, backed by a wave of bullish momentum in the broader foreign exchange (FX) space, continues to exert pressure on the British pound. The key driving force behind the dollar’s strength lies in the elevated U.S. bond yields, further intensifying the challenges faced by the GBP.

Market experts suggest that the relentless uptrend in U.S. bond yields has bolstered the dollar’s appeal, attracting investors seeking higher returns. Simultaneously, uncertainties surrounding the British economy, including concerns about inflation and political stability, have added to the pound’s woes.

The market consensus indicates that until a substantial shift occurs in the prevailing economic and geopolitical factors, the British pound may continue to face challenges against the robust U.S. dollar.