Doves at the Bank of England believe that victory over inflation is imminent, while hawks warn that an early rate cut is a wrong decision. Which side will prevail? GBPUSD’s trajectory depends on the answer to this question. Let’s discuss the Forex outlook and make up a trading plan.
Weekly Pound fundamental forecast
Is the Bank of England’s approach more similar to that of the Fed or the ECB? Investors believe that Andrew Bailey and his colleagues will slowly ease monetary policy, starting in August, and then cut the rate to 4.75% at another Monetary Policy Committee meeting before the year ends. That sounds like the Fed. At the same time, the British economy is more similar to the European one, so if the British regulator starts to loosen monetary policy aggressively like the ECB, GBPUSD will face a tough road ahead.
Market expectations on central banks’ interest rates
Source: Bloomberg.
Hawkish speeches from Bank of England officials suggest that the regulator is taking its time before making a decision. Jonathan Haskel argues that the first act of monetary expansion is still a long way off. At the same time, Huw Pill, the Bank’s chief economist, stresses that it would be a mistake to start cutting interest rates prematurely if inflation remains above the 2% target for an extended period. Judging by the positive momentum in the economy, the UK may withstand the high cost of borrowing.
Indeed, Britain’s composite PMI jumped to an 11-month high of 54 in April, beating the highest forecast of Reuters experts. This index points to a 0.4% expansion in GDP in the second quarter. After an estimated 0.3% growth in the first quarter, the economy seems to recover steadily, giving the BoE time to ponder.
UK PMI Composite
Source: Financial Times.
This is necessary because not all MPC members are hawkish. Thus, Andrew Bailey’s comments on the progress of the deflationary process, that everything is going according to the central bank’s plan, and Sir Dave Ramsden’s comments that the risks of keeping inflation at elevated levels have receded sent the GBPUSD to 5-month lows.
The looming rift at the Bank of England and a still-shaky economy allow Morgan Stanley, Goldman Sachs, Capital Economics, and Bloomberg Economics to forecast a start to monetary easing as early as June. That is, by the time the ECB plans to cut the deposit rate. If that happens, the GBPUSD pair will continue to plummet.
At the same time, it always takes two to make a pair. The market bets on two rate cuts by the Fed this year. However, the US can either refrain from lowering the federal funds rate or bring it down to 4.75% in 2024. In the latter case, the greenback will be hit hard. The Fed’s final decision will depend on the data. The data on Durable Goods Orders, GDP, and Personal Consumption Expenditure Index can drive the GBPUSD from one extreme to the other.
Weekly GBPUSD trading plan
The pair rebounded after reaching both targets for short trades at 1.24 and 1.23. Investors overestimate their views on the Fed and Bank of England rates. Thus, GBPUSD will likely consolidate in the range of 1.23-1.25. Consider selling the pound during upside movements.
Price chart of GBPUSD in real time mode
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منبع: https://www.litefinance.org/blog/analysts-opinions/boe-split-on-rate-cut-forecast-as-of-24042024/
