Data-heavy run-up to BoE meeting sees British pound rise

Pound sterling hovers around $1.26 on hawkish comments from BoE

On Monday, the British pound strengthened against the dollar as traders prepared for a week filled with data releases and central bank meetings, including the upcoming session at the Bank of England (BoE) on Thursday.

As of 15:00 GMT on December 11, the pound had risen by 0.21% against the dollar, reaching $1.2575. The pound to dollar exchange rate, widely known as “cable” in forex markets, topped the $1.270 mark in late November on USD weakness and hawkish statements from BoE policymakers.

The BoE is scheduled for its final policy meeting of 2023 on Thursday, with widespread expectations that the current Bank Rate, standing at a 15-year high of 5.25%, will remain unchanged.

Recent market attention has shifted towards speculation on when the BoE might initiate a rate cut. Traders anticipate that the British central bank will implement rate reductions at a more measured pace compared to the U.S. Federal Reserve. Expectations of interest rate cuts by central banks worldwide have recently spurred stock market rallies — Germany’s DAX Index recently reached new record highs, while the benchmark S&P 500 Index gained close to 500 points since late October.

Stuart Cole, chief macro economist at Equiti Capital, said Monday's rise in the pound can be attributed partly to this underlying theme that cable's interest rate differential with the U.S. looks set to widen through next year. He added:

“I think there is some concern in the market that the BoE will use this week's MPC meeting to push back on the easing we have been seeing in the markets.”

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UK data releases: Labor market, UK GDP data to be published this week

On the data front, crucial information regarding the state of the UK economy will be unveiled this week, starting with labor market data on Tuesday, followed by GDP data on Wednesday.

In other news, the manufacturing trade body Make UK reported on Monday that Britain's struggling factories are showing signs of recovery. This positive trend is attributed to a long-awaited surge in restocking and an uptick in export orders, offering potential support to the sector amid the challenges anticipated in 2024.

GBP to USD forecast: Scotiabank says firm close can put in bull reversal signal on daily chart

In his GBPUSD forecast on Monday, Scotiabank FX Strategist Shaun Osborne weighed in

“GBP price action is – so far on the session – looking constructive from a technical point of view.

A firm close on the session – around or better than current levels – would put in a bull reversal signal on the daily chart and suggest the GBP’s recent slide from 1.27+ was reversing.

Support is 1.2550 on the session. Resistance is 1.2620”.

EUR to GBP forecast: ING says “limited scope” for rebound given euro’s bearish momentum

In his GBP to EUR forecast, Francesco Pesole, FX Strategist at Dutch bank ING, echoed sentiments voiced by Equiti Capital’s Stuart Cole, saying that BoE Governor Andrew Bailey was likely to push back against rumors of interest rate cuts at the Thursday meeting:

“[...] We expect Governor Andrew Bailey to push back against rate cut expectations at next week’s policy meeting, which should favour sterling’s performance in the crosses.

There is still limited scope for an immediate rebound in EUR/GBP, given the euro’s bearish momentum may linger into the ECB announcement. In line with our dollar view, we see downside risks for cable, which may ease back below the 1.2500 gravity line in the coming days”.

In a more long-term euro to GBP forecast, economists at Rabobank said there was scope for a drift back to the 0.84 area towards the end of next year:

“Looking ahead, we see scope for a little more outperformance of GBP vs. the EUR given that the UK’s weak economic position is being balanced by a poor situation for Germany.

We have tweaked our EUR/GBP forecasts in favour of the Pound and see scope for EUR/GBP drifting back to the 0.84 area towards the end of next year, down from a previous forecast of 0.87.”

At the time of writing, EUR to GBP was trading around the 0.855 area, with sterling gaining against the euro. GBPUSD traded around the $1.2575 mark, while the DXY dollar index — a measure of the U.S. currency’s strength against six major counterparts — gained close to 0.1% on the day at 104.11.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.