Amid the tide of global financial markets, the future trend of the British pound has become the focus of investors' attention. As the Bank of England's possible interest rate cut path gradually becomes clear, and global market dynamics continue to evolve, this article will provide a comprehensive perspective, explore in depth the prospects of the British pound, analyze the Bank of England's policy expectations, and how these decisions interact with global market trends.
(GBP/USD daily chart source: eHuitong)
Bank of England interest rate cut expectations and market reaction
As the Bank of England is about to announce an interest rate decision, the market's expectations for the Bank of England to cut interest rates in 2024 continue to heat up. This has caused the pound to fall against both the US dollar and the euro. At present, the market has fully absorbed expectations of 25 basis points each for two interest rate cuts this year, reflecting investors' predictions about the Bank of England's possible dovish stance.
An Institutional Analyst's Perspective
Paul Mackel, global head of foreign exchange research at HSBC, pointed out in his report that the weakening of the British pound is an inevitable trend, which suggests that the market's rise against the British pound has continued for too long. Meanwhile, Goldman Sachs economists James Moberly and Jari Stehn maintain expectations that the Bank of England will cut interest rates for the first time in June. They believe that although April CPI and salary data may show strong continuous growth, the broad anti-inflation process is on the right track.
Matthew Ryan, head of market strategy at Ebury, said in a report that according to market pricing, the Bank of England is unlikely to cut interest rates for the first time before the end of summer, and any confirmation of this outlook by Bank of England officials will fuel the rebound of the pound. Before the Bank of England's meeting on Thursday, he said, “We expect the Monetary Policy Committee to make some clarifications on expectations when to cut interest rates for the first time.” High interest rates in the UK and expectations that interest rates will remain high for a longer period of time after signs of strong economic growth have helped boost the pound. In 2024, the pound outperformed all other G10 currencies other than the US dollar.
Technical analysis and market trends
Although UK construction data shows signs of economic recovery, the weak performance of the pound may indicate broader economic challenges. Furthermore, the consolidation pattern of gold prices also reflects market concerns about geopolitical risks and potential pressure on the banking system. Stonex analyst Rhona O'Connell mentioned that the gold market is currently in a consolidated state after being overbought, but the price of gold is still supported due to strong enough tailwinds in terms of geopolitical risks and potential pressure on the banking system.
Global Markets and Federal Reserve Policy
The speeches of the Federal Reserve officials and the market's bets on the September interest rate cut show that global investors are paying a great deal of attention to US monetary policy. The Federal Reserve's policy trends have a direct and indirect impact on the global market and other currency pairs, including the British pound. Richmond Federal Reserve President Thomas Barkin said that completing the fight against inflation may require a blow to demand, while New York Federal Reserve Governor John Williams said that the Federal Reserve will lower interest rate targets at an uncertain time.
Amidst fluctuations in global financial markets, the future trend of the pound is not only affected by the Bank of England's policy expectations, but is also closely related to global market dynamics. Investors need to pay close attention to the Bank of England's interest rate decisions, the Federal Reserve's policy signals, and market trends in other major economies to make smart investment decisions. At the same time, technical analysis and market sentiment will also play a key role in the short and long-term trend of the British pound.