GBP: Sterling under strain as BoE expected to pause – Societe Generale

Bank of England Expected to Hold Rates Amid Inflation Concerns

Kenneth Broux from Societe Generale anticipates that the Bank of England will likely maintain current interest rates, while cautioning about persistent inflationary pressures. Market sentiment has shifted, with traders now expecting the next policy adjustment to be a rate increase. The GBP/USD pair has been trending lower, encountering significant resistance at the 50-day moving average around 1.3485 to 1.3500, and finding support at 1.3140 and 1.3000.

Sterling Weakens Despite Expectations of Hawkish Stance

It is anticipated that the Bank of England will continue its cautious approach, opting to leave rates unchanged while highlighting the potential for rising inflation. There is uncertainty over whether the Monetary Policy Committee will vote unanimously, or if members like Dhingra will persist in advocating for lower rates.

Currently, money markets have completely dismissed the possibility of rate cuts this year, instead forecasting an increase, with a 21 basis point rise expected by December 2025. Despite this, Societe Generale maintains its projection for three rate reductions, supported by their outlook for Brent crude prices to fall back to $70 per barrel.

The GBP/USD exchange rate has been under consistent downward pressure. A key focus will be whether it can recover above the 50-day moving average near 1.3485/1.3500. If the decline continues, the next levels of support are at 1.3140 and the November low of 1.3000.

Meanwhile, EUR/GBP is attempting to hold above the February low at 0.8610. A break below this level could lead to further losses, while the 200-day moving average near 0.8690 may act as a short-term resistance point.

(This report was produced with assistance from an AI tool and subsequently reviewed by an editor.)