British Pound Rate Talking Points
GBPUSD holds a narrow range as the UK Leadership Contest[1] gets underway, but the Bank of England (BoE) meeting on June 20 may shake up the near-term outlook for the British Pound[2] if the central bank alters the forward guidance for monetary policy.
Fundamental Forecast for British Pound: Neutral
The British Pound may face range-bound conditions as the BoE is widely expected to retain the current policy, but fresh data prints coming out of the UK may sway the monetary policy outlook as the Consumer Price Index (CPI) is expected to narrow to 2.0% from 2.1% per annum in April, while Retail Sales are projected to fall 0.8% in May.
Signs of a slowing economy may produce headwinds for the British Pound as it puts pressure on the Monetary Policy Committee (MPC) to abandon the rate hiking cycle, and Governor Mark Carney and Co. may gradually change their tune over the coming months amid the persistent threat of a no-deal Brexit. In turn, BoE officials may adopt a more dovish tone as the “economic outlook will continue to depend significantly on the nature and timing of EU withdrawal,” and a material adjustment in the forward guidance for monetary policy may undermine the recent rebound in GBPUSD as it spurs speculation for a change in regime.
In contrast, more of the same from the MPC may keep the British Pound afloat as “the Committee continues to judge that, were the economy to develop broadly in line with its Inflation Report projections, an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent,
