The Bank of England held interest rates at 4%, but signalled clearly that a rate cut will come in December, drawing a line under the repricing that has driven sterling lower in recent weeks.
The decision to leave Bank Rate unchanged was widely expected, but the tone of the statement left little doubt that policy easing is imminent.
Markets now see a December rate cut as a done deal, with short-dated gilt yields and forward curves reflecting that conviction.
That conviction has been the pound’s biggest drag for the past month. Now that the market’s repricing looks largely complete, the pound finally caught a breath of relief, with a handful of tentative rebounds across the major crosses.
Bank Rate: Held at 4.00%
Forward guidance: A December rate cut now strongly implied
Market response: Gilt yields edge lower, GBP steadies
Where next for the pound?
Some limited near-term rebounds are possible, but the November 26 budget looms as another test of confidence. Fiscal tightening could temper any sustained gains, especially if investors view new tax plans as dampening growth potential.
GBP/EUR could edge higher from here, but we see rallies as capped near 1.14. The underlying trend still points lower given the euro’s relative stability linked to the ECB's decision to end its own rate cutting cycle. A steady ECB vs. a BoE cuts profile = GBP/EUR softness.
GBP/USD dipped to 1.30 earlier in the week before bouncing to 1.31. Much depends on whether the US dollar’s recovery has peaked. For now, the data flow out of the US is too light to challenge the dollar’s dominance, leaving a break below 1.30 a tangible risk for sterling bulls.
GBP crosses in focus
GBP/AUD is rebounding strongly following the Bank’s decision. The pair was among sterling’s hardest-hit over the past month, so the relief move looks pronounced. Still, there is little evidence the broader trend has turned in sterling’s favour.
GBP/NZD also looks punchy, and the bigger picture still favours GBP given New Zealand’s soft economic momentum. NZD was the worst-performing G10 currency in September, a reminder of its vulnerability to global growth shifts.
GBP/CAD is likewise showing constructive signs. Consolidation around 1.8350 appears to have built a base for renewed gains, though a return to the 1.88s would likely require GBP/USD to rise in tandem.
“We expect GBP weakness to extend further against the EUR heading into year-end if slower inflation is confirmed in October and November. The UK government is expected to announce a significant package of fiscal tightening measures in the Autumn Statement creating more room for the BoE to lower rates further next year,” says Henry Cook, an analyst at MUFG Bank.