Pound rebounds despite BoE rate cut bets
The Pound Sterling (GBP) strengthened against most major currencies on Thursday, despite the United Kingdom’s economic outlook remaining uncertain. This rebound followed a sharp sell-off on Wednesday, triggered by growing speculation that the Bank of England (BoE) may cut interest rates at its upcoming December policy meeting.
Expectations for a BoE rate cut accelerated after the release of the UK Consumer Price Index (CPI) for October, which showed inflation cooling at a pace consistent with forecasts. According to interest rate futures, the probability of a 25 basis point cut to 3.75% in December rose to 85%, up from 80% prior to the data release.
Earlier this month, BoE dovish sentiment was also fueled by UK labor market figures for the three months ending in September, which revealed that the unemployment rate climbed to 5%—its highest level since early 2021.
Traders now await the UK Retail Sales data for October and the flash S&P Global Purchasing Managers’ Index (PMI) for November, both scheduled for release on Friday. These indicators could shape the BoE’s next moves and influence the Pound’s trajectory.
On the fiscal front, investors are watching for the Autumn Budget announcement on November 26. UK Chancellor of the Exchequer Rachel Reeves is expected to extend the freeze on income tax thresholds. The likelihood of this move increased after Prime Minister Keir Starmer did not rule out the possibility during remarks to reporters at the House of Commons.
“The budget is one week today and we will lay out our plans,” Starmer said, as reported by Reuters.
Meanwhile, the Federal Open Market Committee (FOMC) minutes from its October meeting revealed that many officials remain concerned about upside inflation risks. They warned that further rate cuts could entrench inflation or be misinterpreted as a lack of commitment to the 2% inflation target.