Some modest upside risk for the Pound Sterling – MUFG

Ahead of the Bank of England (BoE) meeting, GBP/USD has dropped back below 1.2650. Economists at MUFG Bank analyze Cable’s outlook ahead of the policy update.

Less hawkish BoE policy but may disappoint expectations for May cut

We expect the BoE to signal that it is more confident that the rate hike cycle has ended and they are beginning to consider lowering rates in the year ahead. 

The UK rate market is currently pricing in around 17 bps of cuts by the May MPC meeting. It is likely too soon for the BoE to send a strong signal that the first cut will be delivered in May, especially with the Budget released on 6th March. It poses some modest upside risk for the Pound.