Tuesday's analysis from ING points to the upcoming Bank of England (BoE) meeting as a significant event for the British Pound (GBP), with expectations of trading within a 0.8550-0.8600 range against the Euro (EUR). Analysts at the firm suggest there could be upside risks for the GBP if the BoE's communication leans towards a dovish stance.
The current market sentiment is tempered by recent comments from the Bank of England's Chief Economist, Huw Pill, which have reduced expectations for a major shift in the bank's cautious policy stance. ING's core view is that a rate cut announcement from the BoE might be premature at the Thursday meeting, with a more likely adjustment to occur in August rather than June, according to ING's UK economist James Smith.
Despite the low market pricing of a 30% chance for a June rate cut, ING analysts believe that the GBP does not need to rally significantly if the BoE maintains its current language. They also anticipate that investors may start exploring relative value trades with the GBP, particularly short positions against the Australian Dollar (AUD), due to persistent inflation in Australia and the country's positive output gap.
In summary, ING's outlook for the GBP leading into the BoE policy meeting is cautious. The firm expects the currency to trade in a narrow range against the EUR, with potential upside if the BoE surprises with a dovish tilt. The analysts also highlight the potential for relative value trades involving the GBP in the context of global inflation trends and economic indicators.
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