Home Daily Commentaries Markets await Bank of England interest rate decision

Markets await Bank of England interest rate decision

Conor Fleming
Written by
Conor Fleming

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor spearheads initiatives to encourage businesses in Germany, Switzerland, and Austria to hedge their foreign currency risks with OFX.

| Tuesday 18 June, 2024

Daily Currency Update

A recent rate cut by the ECB has widened the policy gap between Europe, the UK and the United States potentially exposing the euro to further weakness. However, Europe is showing tentative signs of economic growth which should allow the euro to stabilise. ECB chief economist, Philip Lane, said that he is “confident inflation will return to its 2% target by next year” despite some road bumps along the way.

The Bank of England will meet this Thursday to set interest rate policy, while markets expect them to leave rates at a 16 year high. Markets will watch carefully for comments from Governor Bailey surrounding the timing of interest rate cuts now that inflation is cooling back towards its 2% target. Markets now expect the BoE to cut rates by 25 basis points this September coming.

As the dust settles after last week’s inflation data in the US, markets will keenly watch retail sales data due today for signs of how the US economy is faring. This week also sees multiple Fed policymakers speaking, which will be watched carefully for guidance on inflation and whether they feel it is falling consistently enough to warrant a rate cut/s this year.

Key Movers

In Europe today the European Central Bank ( ECB ) advised that the political situation in France is contained. Adding to that, right wing leader of the National Rally party, Marine Le Pen, said that her party would cooperate with French President, Mr. Emmanuel Macron if elected.  These comments allowed a small reprieve for the euro which held its ground today after steep losses last week.

The pound extended losses vs the euro and dollar today as markets anticipate the Bank of England reducing borrowing costs this Summer. During the last Monetary Policy Committee (MPC) meeting Bank of England deputy Governor, Dave Ramsden, joined policymaker, Swati Dhingra by voting for a 25 basis point cut bringing rates down to 5%. This left the council split at 7-2 in favour of leaving rates unchanged.

After their past policy meeting the Federal Reserve minutes confirmed that 4 of the 19 council members voted for no change in rates this year. 7 projected a 25 basis point cut and the final 8 expected 50 basis points of cuts this year. It is clear that while inflation remains stubbornly high, confusion abounds within the Federal Reserve around the timing and scale of interest rate cuts this year.

Expected Ranges

  • GBP/USD: 1.2655 - 1.2715 ▼
  • GBP/EUR: 1.1810 - 1.1855 ▼
  • GBP/AUD: 1.9115 - 1.9175 ▼
  • EUR/USD: 1.0705 - 1.0755 ▼

Written by

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor first embarked on his financial career journey as a trainee dealer in BNP Paribas in the early 90s. His professional journey also took him to New York, where he assumed the role of Head of Sales with an Irish bank for a few years. During his tenure at both banks, he was invited to several interviews on Irish television to discuss market turbulence, the factors driving volatility and insights into what could be expected as events unfolded.