Eyes on Thursday BoE meeting as sterling trades sideways

Pound sterling shows muted dynamic ahead of BoE rate decision

The British pound showed relative stability against the dollar and euro on Monday, with traders directing their attention to the upcoming Bank of England (BoE) meeting scheduled for later in the week.

It is widely anticipated that the BoE will maintain its current interest rates on Thursday, and the focus is expected to shift towards the broader outlook following a series of underwhelming UK economic data readings.

The British pound has seen subdued performance in the currency markets in recent weeks, impacted by diminishing risk appetite, apprehensions in the stock market, and the ongoing conflict in the Middle East.

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BoE interest rates: Markets expecting hold on Thursday

Currency analysts cited by Reuters on Monday emphasized that the deterioration in UK economic indicators, such as last week's labor market data revealing a reduction in inflationary pressures, has solidified market expectations of the BoE keeping interest rates unchanged.

In addition, data from the BoE released on Monday revealed that British lenders granted the fewest home loans in September, marking the lowest figure since January. This further underscores the sluggish state of the property market.

Markets.com Chief Market Analyst Neil Wilson summarised the factors that will likely affect the BoE’s interest rate decision in his morning notes on Monday:

“[…] the Bank of England is expected to leave rates on hold at 5.25% again and signal it’s done with tightening for now. It paused the 2-yr hiking cycle in September and there seems little to recommend changing course. It’s scaled Table Mountain and is happy to enjoy the view before descending the cable car. Three hawks who voted for rates to rise last time to 5.5% may still vote this way – and it would be likely that the MPC would reiterate forward guidance suggesting it could raise rates again if required.

Although inflation held firm at 6.7% in September, no fireworks are expected from the Monetary Policy Committee at the November meeting. Signs of labour market weakness and softening growth outlook will stay the hand of the MPC. The unemployment rate rose to 4.2% between June and August, up from 4% in the March-to-May quarter, whilst signs of a slowdown in the economy seem to be building.”

As of the latest trading, the pound to dollar rate was stable at $1.2148 and had declined by 0.25% against the euro, amounting to 87.37 pence.

GBP forecast: Scotiabank says trading may be “quiet” in lead-up to BoE meeting

In a note cited by Reuters, currency analysts at MUFG said that the BoE was likely at the peak of its rate tightening cycle and that the key would now be "communication in terms of assessing the prospects of a pivot toward a more dovish stance over coming meetings".

"We are likely some distance from that for the BoE but certainly most of the data released since the last meeting in September has pointed to weak economic activity. That may well mean the growth projections in the Monetary Policy Report could show a downgrade from the forecasts in August," the analysts added.

In his GBP forecast, Shaun Osborne, Chief FX Strategist at Toronto-based Scotiabank, said the pound to dollar rate was likely to remain more or less stable prior to Thursday’s central bank meeting:

“Trading may remain relatively quiet ahead of the BoE policy decision on Thursday. Markets expect policy to be left on hold but the GBP may see a minor bid if the voting shows a tight split among the nine policymakers.

A minor bid for the pound could extend a little more above 1.2160 but here too, trend momentum is weak, favouring more range trading.

Support is 1.2070 and 1.2040.”

When considering foreign currency (forex) for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.