Data-driven rate cut risks weigh – Commerzbank

Commerzbank’s Thu Lan Nguyen highlights that recent UK data have become crucial after the Bank of England’s narrow decision to keep rates unchanged. She argues that labour market and inflation releases could significantly move Pound exchange rates. A combination of weak employment and softer inflation would likely boost BoE rate cut expectations and pressure GBP.

UK labour and inflation in focus

“Following the Bank of England’s extremely close interest rate decision (to leave rates unchanged) at the beginning of February, economic data from the UK is likely to be followed with great interest at present. In this respect, today’s labor market data, and especially tomorrow’s inflation data, could bring some movement to GBP exchange rates.”

“At present, the BoE finds itself in something of a dilemma. The economy has recently shown signs of weakness (especially in the labor market). At the same time, inflation is proving stubborn, even if there have been some positive surprises lately.”

“Not least for this reason, central bankers have been very hesitant to cut interest rates so far. If the trend of rather disappointing employment continues and inflation surprises (again) on the downside, expectations of interest rate cuts (even beyond March) could gain new momentum and put pressure on the pound.”

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)