February 11, 2025 – Written by Ben Hughes
STORY LINK Mann Inflation U-Turn Curbs Pound Sterling Support
The Pound to Dollar exchange rate (GBP/USD) retreated to 1-week lows at 1.2335 after dovish comments from BoE member Mann before a tentative recovery to 1.2365 as choppy conditions persisted.
According to ING; “1.2250 looks like the near-term target for GBP/USD.”
Danske Bank, however, expects the dollar will struggle for now; “Our near-term bias remains toward lower US yields and a broadly weaker USD, as we see downside risks to the cyclical US growth outlook.”
Tariffs and Bank of England policies will remain a key element in the short term.
Markets are certainly wary over the threat of further tariffs from the US Administration, although the FTSE 100 index has hit a fresh record high, limiting potential selling pressure on the Pound.
President Trump signed an executive order with 25% tariffs on all steel and aluminium imports due to come into effect on March 12th and stated that there would be no exceptions for any countries.
He also stated that reciprocal tariffs would be imposed within the next few days.
Domestically, markets are continuing to debate why Bank of England MPC member Mann shifted her stance radically at last week’s policy meeting and voted for a 50 basis-point rate cut.
According to Mann, UK inflation is becoming less of a threat as corporate pricing power weakens.
Importantly, Mann added that; “Demand conditions are quite a bit weaker than has been the case — and I have changed my mind on that.”
Mann is due to speak again later on Tuesday while BoE Governor Bailey is also due to make a speech. Comments on interest rates will be monitored closely.
According to ING; “Further comments along those lines this morning could see the markets firm up pricing of three further 25bp BoE cuts this year. Currently the market prices just 66bp.”
Given Mann’s comments, growth indicators will be watched very closely.
According to the British Retail Consortium (BRC) there was an annual like-for-like increase in retail sales of 2.5% for January from 3.1% previously, but above consensus forecasts of 1.1%.
Federal Reserve policies will also be a key element and Chair Powell will testify to Congress on Tuesday and Wednesday.
Powell is likely to face a tough balancing act, especially given major uncertainty over the Administration’s economic policies.
Market pricing has changed slightly with traders pricing in a 60% chance of a rate cut by June.
According to ANZ; “There is a consensus among Fed members that the central bank can be patient when it comes to easing further in an environment in which growth is resilient, inflation is above target, the policy rate is close to neutral and there is elevated policy uncertainty.”
ING commented; “We doubt he needs to sound any more dovish at the moment and we see his speech as a neutral/positive event risk for the dollar.”
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TAGS: Pound Sterling Forecasts
