Boe Interest Rate Cuts Will Pressurize Gbp

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Boe Interest Rate Cuts Will Pressurize Gbp

Commerzbank - Rumors Of BoE Interest Rate Cuts Will Put Pressure On GBP

According to Commerzbank, the rumors of rate cuts by the Bank of England will likely pressure the GBP. As a result, we may see depreciation in the GBP/USD if it materializes. On the contrary, let's not forget that the same rumors are also floating for the Federal Reserve as well.

If we look at the UK's side, the inflation reading for October was lower than September's reading. Despite the positive outcome, we didn't see any reaction from the GBP. The reason behind this is the thought process that lower inflation will allow the BoE to introduce rate cuts.

Inflation Remains Above Target

Although the inflation in the UK has cooled down, it is still higher than the Bank of England's target. So, although the recent inflation reading from the UK could be viewed as positive, it isn't offering much help to the GBP. As mentioned earlier, any progress in terms of inflation will increase the discussion of rate cuts.

Meanwhile, the outlook for inflation in the UK is still very uncertain despite the short-term positive readings. In fact, we will have to wait and see how the inflation station will unfold in the UK.

After all, the core inflation in the UK was 5.7%, based on the recent readings. When compared with the 2% target, that's a difference of almost 3.7%. At this time, it will still be too soon to discuss the policy of rate cuts. In fact, we may move towards the rate hikes if the inflation picks pace again.

So, in the next few months, Commerzbank's analysts believe the GBP will be under pressure. They also added that by the end of next year (2024), one of the first banks to go towards the rate cuts will be the ECB. If this turns out to be true, the GBP will also likely be negatively affected as the UK's economy is still linked with the EU.

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