Pound Sterling Hit by Fresh Wave of Selling

Above: GBP/EUR at 1-hour intervals.

Pound Sterling has come under renewed selling pressure amidst increasing confidence the Bank of England will cut interest rates in June.

The Pound to Euro exchange rate has finally broken out of a stale 14-week range and fallen to 1.1575, its lowest level since the first week of January, after Bank of England Deputy Governor Dave Ramsden signalled a high likelihood of interest rates being cut in June.

“As the market prepares for a June BoE rate cut, GBP has also been on the back foot vs. the EUR in recent sessions,” says Jane Foley, Senior FX Strategist at Rabobank.

The Pound to Dollar exchange rate has meanwhile fallen a further half per cent to 1.2311, its weakest level since November 14, 2023.

The current selloff was triggered by Ransden’s Washington speech, where he said evidence was now pointing to UK inflation prints undershooting the Bank’s internal forecasts, raising the prospect of imminent interest rate cuts.

Bloomberg’s most recent survey of economists shows the consensus now expects the Bank to begin a series of interest rate cuts from June, with a total of five cuts being delivered by the end of the year.

The first cut is now fully priced in for August, whereas it was September a few days ago. Expectations for a June hike have now risen to 50/50.

“Further downside in GBP/USD is easier to sell than upside right now, so the short-term bias seems set to continue lower for now. The next immediate level of support could be seen as the 1.23 mark,” says Daniela Hathorn, Senior Market Analyst at Capital.com.

“The GBP is starting to become a little unglued. The dovish shift from Ramsden and Bailey is helping to push the GBP now as the BoE and ECB try to maintain their dovish rhetoric in the face of an increasingly hawkish Fed,” says Brad W. Bechtel, Global Head of FX at Jefferies.

Ramsden told an audience in Washington that he has become more confident in the evidence that risks to persistence in UK inflation pressures are receding, “helped by improved inflation dynamics.”

Ramsden’s comments follow those of Governor Andrew Bailey who said he was not concerned by last week’s above-consensus inflation data. “Next month’s inflation number will show quite a strong drop,” he said in an appearance alongside other central bankers in Washington. He added that the “latest UK inflation fall matches Bank of England expectations”.

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Bailey recently said the Bank could start cutting interest rates before inflation falls to the 2.0% target and not fear stoking fresh inflationary pressures.

The Governor forms a rump of influential MPC members, that includes Ramsden and Pill, who will join Swati Dhingra in voting for rate cuts.

The May decision should see further voters join Dhingra and the Bank lays out clearly that a rate cut will come in June.

This will keep the Pound under pressure for the foreseeable future.

“The dovish shift in BoE rate cut expectations is beginning to have more of a negative impact on the pound in the near-term. It provides further encouragement for cable to extend the recent adjustment lower towards last year’s lows at just above the 1.2000-level while EUR/GBP could grind back up towards the 0.8700-level,” says Lee Hardman, a currency strategist at MUFG Bank Ltd.