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GBP/USD Exchange Rate Predicted to Slide, Bank of England to Downgrade Forecasts

Bank of England

GBP/USD Exchange Rate Trades Sideways Ahead of Bank of England Policy Statement

The Pound US Dollar (GBP/USD) exchange rate is currently rangebound this morning as markets await the latest policy decision from the Bank of England (BoE).

At the time of writing the GBP/USD exchange rate is trading at around $1.2869, virtually unchanged from the day’s opening rate.

Pound (GBP) to Soften on Gloomy Bank of England Outlook?

The Pound (GBP) looks poised to stumble this afternoon, as the Bank of England concludes its November policy meeting.

Given current Brexit and election uncertainty it seems highly unlikely the central bank will announce any surprise policy changes this month.

GBP exchange rates will instead be driven by the publication of the BoE’s Monetary Report.

This is likely to cast Sterling lower as the latest forecasts are set to paint a gloomier picture of the UK economy.

Howard Cunningham, fixed income portfolio manager at Newton Investment Management, suggests:

‘The UK market continues to be susceptible to UK politics and as such we would expect the central bank to cut growth and inflation forecasts in its Monetary Policy Report.

‘A poor economic forecast would put pressure on the central bank to introduce easing measures. The loss of momentum may even see previously hawkish members of the Bank of England’s Monetary Policy Committee acknowledge the need for a rate cut.’

Markets will also pay close attention to Mark Carney’s accompanying speech, with the Pound coming further pressure if the Bank of England Governor strikes a cautious tone.

Renewed Risk Appetite to Undermine the US Dollar (USD)?

The US Dollar (USD) trended higher through the first half of the week, but these gains may now start to be eroded by renewed risk sentiment.

This comes amidst positive US-China trade news.

Bloomberg reports the two powers have agreed to begin rolling back some of the tariffs on each other’s goods.

Set to take place in phases the tariffs relief will make a major de-escalation in trade tensions.

It’s hoped the first stage of roll backs will coincide with the signing of a ‘phase 1’ trade agreement, expected to take place sometime in December.

While the news will be a major relief to USD investors given the trade wars toll on the US manufacturing sector, in the short-term the news is likely to more benefit more risk-sensitive currencies, limiting the appeal of the safe-haven US Dollar.