Pound Steadies Ahead of Bank of England Meeting

On Thursday, the pound stabilized against the dollar as traders awaited the Bank of England’s meeting, widely anticipated to maintain UK rates, though uncertainty looms over its monetary policy outlook.

This week sees a flurry of central bank decisions. Notably, the Bank of Japan surprised markets on Tuesday by abandoning negative interest rates and hiking rates for the first time in 17 years. Meanwhile, on Wednesday, the Federal Reserve reiterated its expectation of three interest rate cuts in the U.S. this year.

The Swiss National Bank and the Norges Bank are both set to announce decisions on Thursday, adding to the week’s central bank activity.

Traders are increasingly pricing in a high likelihood of the Fed’s first rate cut occurring in June, with rates expected to end the year around 4.50%, down from the current range of 5.25-5.50%.

While the Bank of England may hold off on significant rate cuts until August, recent inflation figures suggesting a cooling in consumer price pressures have brought June into consideration, with traders giving it roughly a 60% chance of a drop.

The pound remained unchanged against the dollar at $1.2788, marking a 1.3% increase for the month so far and poised for its largest monthly gain against the dollar since November.

Against the euro, the pound traded flat at 85.47 pence, experiencing a 0.2% loss for the month.

Sterling’s outperformance against the dollar this year, surpassing other G10 currencies, is attributed to the likelihood of a larger premium of UK rates over those elsewhere. The pound’s 0.5% increase leads all G10 currencies, with the Chinese yuan trailing as the runner-up, having lost 0.2% against the U.S. currency this year in the offshore market. Conversely, the Japanese yen has faced the most significant decline, falling approximately 7%.