BoE rate meeting: will it be enough to wake up GBP/USD?

BoE rate meeting: will it be enough to wake up GBP/USD?
 

The highly anticipated Bank of England rate meeting, a pivotal event in the financial calendar, is scheduled for tomorrow, May 9, at midday London time. It is widely expected that they will maintain their interest rates unchanged for the sixth consecutive meeting, marking the second meeting since September 2021 without any BOE members voting to hike rates. However, the meeting will feature updated economic forecasts, potentially setting the tone for the market in the coming months.
 

Some banks speculate that the Bank of England will hint at a possible rate cut in June at tomorrow's rate meeting. However, the market expects the first rate cut to occur in August, with projected cuts totalling 45 basis points, roughly equivalent to those expected for the Fed. This explains why the GBP/USD has traded sideways in recent weeks and months.
 

Delving into the UK's economic situation, the annual GDP growth rate was -0.2% in the fourth quarter of 2023, indicating five quarters of near-zero growth since the fourth quarter of 2022. The possibility of the Bank of England cutting rates before the Fed is high, if not for the persistent inflation.
 

Annual UK inflation remains elevated at 3.2%, with core inflation at an alarming 4.2%. The unemployment rate rose to 4.2% in February 2024 but remains below the 4.3% seen in July 2023, suggesting a robust labour market. Moreover, the service sector has likely exhibited significant growth, with the Services PMI climbing from a contraction at 49.3 points in September 2023 to 55 points in April 2024, indicating a positive trend.
 

These developments suggest that the UK economy might soon move past the period of low growth. However, given the high inflation, strong labour market, and positive PMI indicators, the risk remains that the Bank of England may not hint at rate cuts this week.
 

The Bank's governor has stated they are on track to meet their inflation forecasts. The Bank of England's chief economist mentioned that while the baseline scenario for a bank rate cut remains some distance away, it could start to cut before pay and services CPI targets are met. However, he reiterated the greater risk of easing policy too early rather than too late. BOE's Haskell recently noted that UK inflation is unusually high and the labour market extremely tight, adding that inflation will likely remain high unless the job market weakens. Thus, some banks' predictions of a rate cut as early as June might be premature.
 

From a technical analysis perspective, the EUR/GBP has been in a state of stagnation, trading around the same levels since June 2023. However, the price might soon attempt to break out from a descending triangle pattern. A break to 0.8646, the high from April 22nd, could potentially lift the price to 0.8832, surpassing the November 23 high of 0.8766. For this to occur, the Bank of England would need to lean towards easing, possibly with two members voting for a rate cut compared to just one last month. Without significant indications of rate cuts, it is realistic to expect that we will remain between the 2024 low of 0.8495 and 0.8646, potentially leading to a continuation of the current trading range.
 

EUR/GBP
 

Considering GBP/USD, it is likely that the BoE reduces rates ahead of the Federal Reserve, it therefore seems realistic that GBP/USD will trend lower rather than higher. From a technical standpoint, if the price remains below 1.26, GBP/USD may revisit levels around 1.24 and 1.23. However, the trend is not particularly strong, and caution is warranted.

GBP/USD 

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