BOE

GBP/USD fell last week after a dovish shift at the BOE prompted traders to increase bets on a June rate cut - see the levels to watch in the coming week!

The trend among G10 FX central banks this week has been to deliver dovish surprises relative to market expectations. That makes for an interesting backdrop for GBP/USD traders as the pair contemplates life above 1.2800 again ahead of the Bank of England meeting on Thursday.

It is a monster week ahead for traders with a key focus on central banks, with BOJ, Fed, BOE and RBA meetings on the menu.

GBP/USD is the weakest US dollar cross after this morning’s cooler-than-expected UK CPI report - see what it means (and doesn't mean) for the BOE!

GBP/JPY is on the cusp of breaking to fresh multi-year highs ahead of key inflation and employment data from the United Kingdom and Japan, making this a pair to keep on the radar over the next 48 hours.

The US dollar was lower across the board after traders digested the latest Fed meeting and are now focusing on four cuts this year, beginning in May. EUR/USD is just one of several pairs to form engulfing days against the US dollar.

The FTSE eased off from earlier highs on not-so-dovish BoE hold. The key takeaway point is that there was no pivot, with the BoE warning that there's still some way to go on inflation front. This implies tight policy for longer. GBP/USD extends post FOMC rally as BoE's "finely balanced" decision saw three dissenters voted for 25bps hike.

We have arguably seen the biggest central bank surprise of the week, with the Fed’s dovish pivot. But that may also influence the tone of the SNB, BOE and ECB at their meetings today – even if only to a degree.

Earlier, the Bank of England announced interest rates would be kept unchanged in a surprise move (not to us) and the pound took another plunge, dropping below 1.2250 in initial reaction. The BoE’s policy statement was somewhat hawkish and the MPC split. This means that the next few policy decisions could be close calls, especially if inflation doesn’t come down fast enough.

Only a ‘hawkish hike’ from the Bank of England (BoE) is likely to be enough to turn around the fortunes of GBP/USD given rapidly weakening fundamentals.

The GBP/USD will come into sharp focus over the next couple days, with two pivotal events on the horizon: the FOMC and BoE rate decisions. Additionally, traders are anticipating the release of UK CPI and retail sales data, as well as global PMI figures this week. These developments collectively have the potential to shape the near-term GBP/USD outlook. UK CPI could sway BoE decision, with the UK central bank likely to mimic ECB's dovish hike. Meanwhile, the FOMC is likely to go for a hawkish hold.

The GBP/USD is in focus ahead of this week’s key events: FOMC and BoE rate decisions. We also have UK CPI and retail sales, as well as global PMI figures to look forward to this week. The BoE is likely to deliver a final 25 bps hike, while FOMC is seen holding policy unchanged. The GBP/USD could be heading to low 1.20s in this busy week.

Whilst the Fed are expected to hold rates steady in September, next week’s FOMC meeting also includes the quarterly staff projections. And changes to dot plot or CPI estimates can be as good as a hike where market reactions are concerned. The odds of another BOE are next week are not as high as they were, which makes the preceding inflation report paramount to expectations for their next decision. And whilst the BOJ are unlikely to act, that is no reason to drop your guard given their tendency to surprise once in a while. We also have flash PMIs for major regions and inflation data to mull over.

Sticky wages growth is one of the few positives for GBP/USD right now, keeping the prospect for rate hikes from the BOE in play.

GBP/USD is approaching near-term resistance around 1.2800 ahead of tomorrow’s retail sales report...

Governor Bailey gave very little away in his initial comments, although he didn’t push back against market pricing of another rate increase in September. Traders’ focus will now turn to the US again, where long-dated bonds have been selling off since that Fitch downgrade.

Traders are pricing in about a 40% chance of a 50bps rate hike from Andrew Bailey and Company, so regardless of what the BOE decides, a significant portion of traders will be caught offsides, presenting a recipe for volatility in UK assets.