Forex News: Pound Falls Ahead Of BoE Rate Decision

Pound Falls Ahead Of BoE Rate Decision

(RTTNews) - The British pound weakened against other major currencies in the European session on Thursday, as traders await the Bank of England (BOE) monetary policy decision due later in the day. The BoE is set to announce its monetary policy decision later today. Markets anticipate the BoE to maintain its benchmark rate at 3.75 percent, the lowest since June 2023.

The U.K. Consumer Price Index data that was released on Wednesday showed that the monthly inflation decreased to 0.2% from 0.7% in the previous month and core inflation increased below forecasts, yearly inflation stayed stable at 2.8%, much lower than the 3.3% peak recorded in March. There is less pressure on the Bank of England to raise interest rates in the upcoming months because May's inflation data is lower than the bank's February forecasts.

Apart from that, the U.K. economy is showing signs of exhaustion. After growing by 0.3% in March and 0.4% in February, the GDP decreased by 0.1% in April, while industrial production stagnated after contracting by 0.2% the month before. By raising borrowing costs in this situation, the BoE runs the risk of sending the economy into a protracted recession.

The Bank of England's situation has changed substantially as a result of recent U.K. data and the US-Iran peace process. While the bank is unlikely to change its "wait-and-see" approach, these new circumstances may lead BoE policymakers to take a more dovish stance.

Meanwhile, official data showed earlier in the day that the U.K. unemployment rate ticked down to 4.9 percent in the three months to April from 5.0 percent in the three months to March. Payroll employment increased after three consecutive monthly declines.

European stocks were moving lower after the U.S. Federal Reserve left interest rates unchanged as widely expected, but the latest set of projections suggested there could be at least one increase to its main rate this year.

In the European trading today, the pound fell to nearly a 3-week low of 0.8684 against the euro, from an early high of 0.8649. The pound may test support near the 0.87 region.

Against the U.S. dollar and the yen, the pound slid to nearly a 2-1/2-month low of 1.3225 and a 1-month low of 212.59 from early highs of 0.8649 and 1.3325, respectively. If the pound extends its downtrend, it is likely to find support around 1.31 against the greenback and 210.00 against the yen.

The pound edged down to 1.0619 against the Swiss franc, from an early high of 1.0644. On the downside, 1.05 is seen as the next support level for the pound.

Looking ahead, Canada PPI for May, raw materials prices for May, U.S. weekly jobless claims data, U.S. Philadelphia Fed manufacturing index for June, U.S. Consumer Board's leading index for May and U.S. Baker Hughes oil rig count data are set to be published in the New York session.

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