EURGBP: Why did the pound lose its edge?

Stability isn’t exactly a given in today’s context, and the EURGBP pair is deeply entwined in this world. A few weeks ago,  there was talk of the pound emerging as one of the top currencies in 2024, but now, this optimism seems like a distant memory. Let’s try to explore why the tide turned and what exactly changed. 

Let’s start with a simple task. Take a look at the EURGBP chart from last month and pinpoint the moment when the Bank of England meeting took place. It shouldn’t be too hard. To stay ahead of all significant economic events and react promptly, you can use a special tool – the economic data calendar. It provides data and forecasts related to all minor and major economic announcements.

A glance at the one-year chart reveals that the latest peak wasn’t all that remarkable. However, it still marks the lowest point for the pound in 2024, given the expectations for substantial growth in recent months.

The Bank of England raised interest rates higher than other major central banks, and winter saw persistently high inflation rates. These factors allowed market participants to assume that the BoE would hold off on rate cuts until August, after the Federal Reserve and the European Central Bank. This discrepancy was anticipated to boost the pound’s rate in 2024. 

As for the ECB’s expected rate cut in June, there’s been no deviation from predictions so far. However, the Fed’s stance has changed: the US economy has proven resilient, with inflation remaining elevated, leading experts to speculate that the rate-cut cycle will start by the end of summer. In other words, the pound is unlikely to profit from this divergence.

Returning to the recent BoE meeting, where remarks suggested that the UK’s inflation situation was stabilizing. The market interpreted this as a sign that expectations for a dovish turn in British monetary policy might need reassessment, with many experts now eyeing a potential rate cut in June.

It looks like the GBP lost its edge. Nonetheless, this doesn’t necessarily mean we’re in for a substantial drop in the pound’s value. More probable is a scenario of sideways movement. Yet, we began this discussion with a simple truth: change is constant. Economic events will continue to unfold, and it’s essential to keep track and conduct your own analysis.