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EBC Markets Briefing | Pound falls as investors flip-flop on BOE’s cuts

Sterling edged downwards amidst light trading on Tuesday. The currency has lost momentum so far as the dollar was pushed higher by economic imbalances between the US and other developed economies. Last week Governor Andrew Bailey said the UK is “on the way” to winning its fight against inflation. He added the central bank’s failure to forecast the upsurge will not lead to more caution about policy pivot. Money markets have raised wagers on easing at its next meeting in May, putting the probability of a rate cut at 20%, compared to less than 10% for the Fed and the ECB. That marks a big shift in positioning. The UK had been expected to lag peers as inflation remained stubbornly high last year. At the beginning of this year, one cut was expected for the BOE over the course of 2024 and two for the Fed and the ECB. Still JPMorgan strategists favour tactically betting against any such easing in May, given the paucity of economic data before the next meeting. BofA sticks to its view that the ECB will lower rates sooner. Catherine Mann on Monday said that she thought markets were betting on too many interest rate cuts though she turned a bit more dovish voting for a pause this month due to weak consumption. The pound is supported by its 200 SMA and a decisive breakout is unlikely before Friday’s PCE report. Therefore, range trading might be effective with the potential exit point around 1.2760. EBC Financial Risk Management Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC Financial Risk Management or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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Investment involves risk. The content of this report is not an investment advice and does not constitute any offer or solicitation to offer or recommendation of any investment product.

Publication date:

2024-03-27 08:56:16 (GMT)

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