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Pound US dollar (GBP/USD) exchange rate forecast: BoE in focus

A pile of GBP pound coins.

The pound US dollar (GBP/USD) exchange rate is trending slightly lower this morning prior to the Bank of England’s (BoE) upcoming monetary policy meeting.

At the time of writing the GBP/USD exchange rate is trading at around $1.2705, virtually unchanged from this morning’s opening rate.

Pound (GBP) wavers ahead of BoE interest rate decision

The pound (GBP) is largely subdued this morning ahead of the BoE looming interest rate decision.

With markets widely expecting the central bank to leave interest rates unchanged at a sixteen-year high of 5.25%, investor focus will likely be drawn to any new signs of policymaker divergence. Last month two of the seven rate-setters voted for a rate reduction, with the remainder voting to maintain the current base rate. Should any additional members opt for a rate cut later today, GBP may tumble amid signs that rate-setters are gradually leaning towards monetary unwinding.

Additionally, the BoE’s forward guidance may imbue GBP with additional volatility. As markets and economists alike place their bets on an August rate cut, any dovish signals from the central bank may reinforce speculations that monetary loosening will likely occur during the second quarter of 2024, denting the pound.

On Friday, the UK’s latest retail data is then due for release. Analysts expect retail sales to have rebounded in May, forecasting a 1.5% expansion after April’s disappointing 2.3% contraction. Should the data print as forecast, Sterling could attract some investor support amid signs of improving consumer activity.

US dollar (USD) fluctuates ahead of jobs data

The US dollar (USD) is largely muted this morning ahead of the latest US employment due for release this afternoon.

Initial jobless claims for the week ending 15 June are forecast to have eased to 235,000, dipping slightly from 242,000 in the previous week.

A slight decrease in the number of newly unemployed US citizens claiming unemployment benefits may lend some credence to recent assertions made by Federal Reserve policymakers. Fed officials have remarked that the American labour market remains tight, which reduces the need to enact any hasty monetary unwinding. As such, signs of steady US unemployment may serve to quell Fed rate cut bets, thereby lifting the ‘greenback’.

Later this evening, Fed policymaker Thomas Barkin is due to speak. As one of the more neutral members of the central bank, Barkin will likely reiterate the Fed’s data-driven approach towards monetary unwinding. However, any notably hawkish comments may lend USD some additional support.

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