The BoE's upcoming decision presents a complex backdrop for GBP, given the mixed economic data. While a 25bp cut is well-priced, the focus will be on the Bank's tone and projections. Goldman Sachs expects gradual GBP weakness rather than an immediate sharp sell-off, but risks remain for a more dovish surprise.
Key Points:
BoE Expected to Cut Rates by 25bps:
Markets have already priced in ~73bps of total rate cuts for 2025, but Goldman Sachs expects 100bps of cuts.The BoE’s tone and forecasts will be key in shaping the GBP outlook.Risks for a More Dovish BoE:
UK data remains mixed, making it unclear how the BoE will react.The BoE may revise growth and inflation forecasts lower, creating downside risks for GBP.If the BoE capitulates on its hawkish stance, GBP could face sharper depreciation.Market Risks and Global Factors:
Higher global yields earlier this month sparked fiscal concerns—a repeat could hurt GBP.A continued deterioration in UK data could also add to GBP downside.Strategy & Conclusion:
Goldman Sachs maintains a gradual bearish view on GBP but thinks being flat is the best position in cross/GBP for now.
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