Pound Sterling awaits BoE decision

The Pound Sterling drops off a bit against the US Dollar as traders anticipate the big event for the day, the announcement of the BoE’s policy decision at the conclusion of its June meeting. The announcement is scheduled to take place at 11.00 GMT. The accompanying statement and meeting minutes will offer more background detail on the bank’s stance, as well as the division of voting. These in turn may impact the outlook for the future path of interest rates and, therefore, impact the Pound Sterling. The market consensus is for there to be no rate cuts and a 7-2 split in the voting, with 2 favoring a cut. It is very rare for the BoE to change interest rates during an election campaign. BoE Governor Andrew Bailey himself said a rate cut at the meeting was, “neither ruled out nor a fait accompli”. Despite UK Consumer Price Index (CPI) inflation data showing a fall to the BoE’s 2.0% target in May, higher inflation in other pockets of the economy continue to keep policymakers away from voting for a cut, with a first rate cut not likely until August. 

“​​Over in the UK, there was another important milestone yesterday, as CPI inflation fell exactly in line with the Bank of England’s target, reaching 2.0% in May as expected,” says Jim Reid, Global Head of Macro Research at Deutsche Bank. “However, some of the details of the report were less favorable, as core CPI was higher at 3.5%, while services inflation surprised on the upside at 5.7% (vs. 5.5% expected), and that’s one of the stickier categories. As a result, investors dialed back the chance that the Bank of England would cut rates by the August meeting, with the chance falling from 52% to 34% by the close.”