Sterling sharpens decline to four-week trough after BOE's policy decisions

Sterling declined in European trade on Friday against a basket of major rivals, sharpening losses for the second straight session against the dollar and plumbing four-week lows, after the Bank of England took a somewhat bearish stance at this week’s policy meeting.

The odds of a BOE interest rate cut in June rallied once more, in turn hurting the pound against main rivals. 

GBP/USD

GBP/USD fell 0.55% to 1.2590, the lowest since February 20, with a session-high at 1.2675, after closing down 1% on Thursday, the fifth loss in six days, and the largest since October 2023.

Weekly Trades 

The pound is down 1.2% so far this week against the dollar on track for the second weekly loss in a row.

Bank of England 

The Bank of England maintained interest rates unchanged at 5.25% on Thursday, the highest in 15 years.

Eight members voted in favor of maintaining interest rates, while one member voted in favor of a rate cut. 

The BOE noted that the monetary policy position could remain constrictive even after a rate cut. 

It added that inflation continues to taper off, but at a slower pace than expected, with ongoing risks emanating from the Middle East and shipping disruptions. 

Andrew Bailey 

Bank of England Governor Andrew Bailey said in his post-meeting press conference that there are encouraging signs of slowing inflation, but the bank needs more certainty before cutting rates.

UK Rates 

There’s now a 60% chance of a BOE interest rate cut in June according to market bets, and a 95% chance of a cut by August.

Traders now expect a total of 77 basis points of total UK interest rate cuts this year on average.

Interest Rate Gap

The current US-UK interest rate gap stands at 25 basis points, and could very well rise to 50 basis points in June as the BOE could raise rates then and the Fed could delay such a decision.