The British pound is stronger against the US dollar but weaker compared to the euro. A stagflation challenge in the UK could lead to further depreciation of the GBP against the euro.<\/p>\n
The Bank of England is anticipated to cut its policy rate by 25 basis points to 4.00%, favouring a cautious approach to future rate adjustments. Despite a contraction in UK’s real GDP for April and May, persistent high inflation may keep the BOE’s stance restrained.<\/p>\n
In a recent meeting, the Monetary Policy Committee voted 6-3 to hold rates, with some members advocating for a 25bps cut. Current predictions foresee a potential three-way split among members regarding rate cuts, holding, or even a 50bps cut, affecting the BOE’s easing strategy.<\/p>\n
The Monetary Policy Report will offer updated economic forecasts and assess the prior year’s quantitative tightening. The BOE aims to decrease its gilt holdings by \u00a3100bn between October 2024 and September 2025. Continuing the \u00a3100bn pace of gilt runoff may increase long-term yields, as it would require selling a substantial \u00a351bn of gilts.<\/p>\n
The stagflation threat in the UK suggests a challenging path for the pound against the euro. With the European Central Bank holding rates steady due to its own inflation concerns, we see potential for the GBP\/EUR pair to decline further. This trade is compelling as the Bank of England leans towards easing monetary policy while its European counterpart remains more cautious.<\/p>\n
We anticipate the Bank of England will deliver a 25 basis point rate cut, but the real uncertainty lies in their future guidance. The potential three-way split on the Monetary Policy Committee suggests a lack of consensus, which could create significant volatility in the pound. Options strategies that benefit from sharp price swings could be advantageous around the next policy announcement.<\/p>\n
The economic data from earlier this year, showing a contraction in April and May, still weighs on the outlook. Although recent figures for June showed a minor rebound, the latest July inflation print came in at a sticky 3.1%, keeping it well above the 2% target. This data reinforces the view that the Bank must choose between supporting weak growth or fighting persistent inflation.<\/p>\n
We are also closely watching the UK gilt market as the Bank of England continues its \u00a3100 billion quantitative tightening program through September 2025. The planned sale of gilts will likely put upward pressure on long-term borrowing costs, and we’ve already seen 10-year gilt yields rise in anticipation. This is reminiscent of the market reactions we saw during the 2022-2023 tightening cycle, suggesting opportunities to position for higher yields.<\/p>\n
While the pound has shown some strength against the dollar, we believe this could be short-lived. The US Federal Reserve appears to be on a firmer hold, supported by a more resilient economy and robust labor market data from July. A diverging policy path, with the BoE cutting rates while the Fed stands firm, could see the GBP\/USD exchange rate come under pressure.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" UK faces stagflation risks; BOE eyes cautious rate cuts amid inflation and GDP contraction, impacting pound’s strength.<\/p>\n","protected":false},"author":62,"featured_media":17030,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-28504","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/28504","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=28504"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/28504\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17030"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=28504"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=28504"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=28504"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}