Pound tumbles, is a BoE rate cut inevitable?

The pound limped over the finishing line last week after a Bank of England (BoE) policymaker hinted a rate cut may be on the cards even if a Brexit deal is found.

Sterling appears to be holding its ground so far this morning however, with GBP/EUR edging up to €1.1249, GBP/USD stable at $1.2303, and GBP/CAD flat at C$1.6276. GBP/AUD and GBP/NZD have both ticked higher, striking AU$1.8219 and NZ$1.9644 respectively.

Coming up this week, we may see UK politics continue to inject volatility into GBP exchange rates, especially if MP’s call for a no-confidence vote in Boris Johnson.

What’s been happening?

The pound closed out last week’s session on the back foot, diving to new multi-week lows following some dovish comments from the BoE’s Michael Saunders.

Saunders suggested that the ongoing uncertainty over Brexit was acting as a ‘slow puncture’ on the UK economy, whilst warning that a slowing global economy could result in a rate cut even if a no-deal Brexit is avoided.

This further weakened Sterling sentiment.

The euro traded higher on Friday, with EUR investors shrugging off weaker-than-expected business confidence figures and allowing the single currency to capitalise on the weakness of its peers.

At the same time, the US dollar stumbled at the end of last week despite a modest rebound in US durable goods orders.

What’s coming up?

Looking to the week ahead we expect to see the pound remain highly sensitive to UK political developments.

Reports suggest that a vote of no-confidence could be tabled by opposition parties this week as they fear Boris Johnson may try and circumvent a bill compelling him to seek another Brexit extension.

On the data front, Sterling may struggle to find support this morning as the UK’s latest GDP figures are likely to confirm economic growth contracted by 0.2% in the third quarter.

The euro could also face some headwinds this morning after German retail sales rebounded less than expected in August.

Meanwhile, USD investors will be focused on the latest ISM manufacturing PMI figures in the first half of the week, with another weak reading in September potentially exerting some pressure on the US dollar.