The Bank of England (BoE) will reveal its latest interest rate decision on Thursday. Should policymakers strike a dovish tone alongside an anticipated rate cut, the pound could falter.
At the time of writing, GBP remains subdued, trading just above recent lows. GBP/USD is lingering about a cent above the 12-week trough reached last week, while GBP/EUR is hovering less than a cent above the 32-month low recorded at the end of July.
What are markets anticipating from the BoE?
The BoE is broadly expected to cut interest rates by 25 basis points, bringing Bank Rate down to 4%.
With a quarter-point cut largely priced in, investors will focus on the breakdown of the Monetary Policy Committee (MPC) vote, as well as updated economic forecasts and any guidance on future policy moves. Markets will be particularly attentive to hints about when subsequent cuts might be delivered.
What could this mean for the pound?
If the vote shows a more dovish tilt, such as some members supporting a deeper 50bps cut, GBP exchange rates could slide as traders adjust expectations for a more aggressive pace of monetary easing. On the other hand, a closer vote could offer Sterling some support.
Any upward revisions to inflation projections may also act as a cushion, helping to temper losses.
However, with the bank cutting rates and the UK's economic backdrop deteriorating, Sterling could ultimately weaken following the decision.
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