The British pound traded around $1.264, slightly below a 10-week high of $1.2669 reached on February 20, as expectations for Bank of England (BoE) rate cuts continued to mount.
British pound slightly retraces against US dollar
BoE policymaker Swati Dhingra defended her call for a larger half-point rate cut, arguing that even a gradual easing of interest rates would ensure that monetary policy remains restrictive and continue to weigh on the economy. She emphasized the persistence of weak consumer spending, subdued inflationary pressures, and a cooling labor market despite rising wages, factors which she believes warrant a shift toward looser monetary policy.
Her dovish stance has led traders to revise their expectations, now pricing in about 56 basis points of rate cuts this year—equivalent to two quarter-point reductions. Market participants now expect the first rate cut by June, with increasing speculation that it could occur as early as May, while a second cut is anticipated by November. This shift in expectations has contributed to some downward pressure on the pound, as investors adjust their positions in response to the growing likelihood of a more accommodative BoE stance.
Geopolitical developments influenced the forex market
Elsewhere, geopolitical developments have kept markets on edge. US President Trump confirmed that tariffs on Mexico and Canada would remain in place, signaling continued protectionist policies for North American trade. Additionally, Trump has pushed for stricter restrictions on semiconductor exports to China, alongside tougher US controls on the semiconductor industry, as part of broader efforts to protect technological sovereignty and limit China's access to advanced technology. These moves add another layer of uncertainty to the global trade landscape, further influencing currency and commodity markets.
Focus on BoE next-week meeting
As the UK and global markets await more clues from the BoE and US policy changes, traders will be closely watching any shifts in economic data, particularly around inflation and labor market conditions, which could influence central bank actions in the coming months. The balance between domestic economic concerns and broader geopolitical risks will likely remain a key driver for the British pound in the near term.
