The British Pound has consolidated its recent gains against the Euro and Dollar, maintaining strong positions above 1.17 and 1.27 respectively. This performance followed a higher-than-expected UK inflation rate and the announcement of a General Election, prompting the Bank of England (BoE) to enter a period of pre-election purdah, suspending official communications until after the vote in July.
Analysts suggest that this suspension is beneficial for the Pound as it reduces the likelihood of an imminent BoE rate cut. Previously, markets had predicted over a 50% chance of a rate cut in the next policy decision, negatively impacting the Pound’s exchange rates. However, the unexpected inflation figures for April have decreased these expectations, bolstering the Pound’s value.
The absence of public engagements by the BoE’s Monetary Policy Committee (MPC) members means that any potential rate cut cannot be signaled until after the election, likely pushing the earliest opportunity for a cut to August. This delay supports the Pound against other currencies, particularly those from central banks, such as the European Central Bank (ECB), that are expected to cut rates sooner.
Analysts like Robert Howard from Reuters and David Alexander Meier from Julius Baer note that the BoE’s decision to avoid headline-making moves during the election period makes a rate cut in August more probable. This cautious approach has strengthened the Pound, aligning with Julius Baer’s forecasts for a robust performance. The ECB is anticipated to cut rates in June, with the Federal Reserve following in September. Rhys Herbert from Lloyds Bank also indicates that the ECB might implement additional rate cuts in July, further influencing the market dynamics.
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