According to FX Strategist at ING Francesco Pesole, the Bank of England (BoE) seems to be leaning towards a rate cut in August, even though there hasn’t been a significant change in policy communication. Market sentiment is split on whether an August rate cut will happen, with only 14 basis points priced in. ING predicts a total easing of 75 basis points this year, compared to the market’s more conservative estimate of 47 basis points. This dovish outlook on the BoE suggests a bearish trend for the Pound Sterling (GBP) this summer, especially with the added uncertainty of the upcoming UK election.
Interestingly, despite the political uncertainty in the UK, the Euro (EUR) seems to be more affected than the GBP. This delay in the re-appreciation of the EUR/GBP pair beyond 0.8500 is attributed to the Euro’s current struggles. However, once the political noise in the EU settles and there is more monetary policy convergence, there could be significant upside potential for the pair.
In the short term, the GBP is expected to weaken against the US Dollar (USD), with a forecast of Cable dropping below 1.25 in July. The upcoming week’s UK economic calendar is quiet, with no scheduled BoE speakers, adding to the uncertainty surrounding the GBP’s performance.