Sterling Weakens Ahead of This Week's Bank of England Policy Meeting, Says Mitsubishi UFG

07:15 AM EST, 11/03/2025 (MT Newswires) -- Sterling (GBP) has weakened ahead of Thursday's latest Bank of England policy meeting, said MUFG.

EUR/GBP was attempting to break above the 0.8800 level at the end of last week, while GBP/USD broke back below support from the 200-day moving average at around 1.3250 for the first time since April and then hit a low of 1.3097 on Friday, wrote the bank in a note.

Sterling has been undermined by the dovish repricing of BoE rate cut expectations in October, stated MUFG. The two-year Gilt yield dropped by just over 20bps last month. Market participants have moved to price in a higher probability that the BoE will deliver another rate cut before the end of this year.

There are currently around 8bps of BoE rate cuts priced in for this week's Monetary Policy Committee meeting and 17bps of cuts by the December MPC meeting, pointed out the bank. Market pricing has moved more into line with MUFG's forecast for another rate cut in December, although one can't rule out another cut as soon as this week, which could trigger another leg lower for sterling.

The latest price action has supported the bank's long EUR/GBP trade recommendation.

After communicating to market participants since the summer that they are likely to slow the current quarterly pace of rate cuts, MUFG still expects the BoE to leave rates on hold this week.

One weaker consumer price index report for September is probably not sufficient to force the BoE to go against recent guidance. The bank assumes that the BoE would prefer to see further evidence of weaker inflation and the details of the government's upcoming Fall Statement before cutting rates in December.

A bigger package of fiscal tightening measures, estimated at between 30 billion-50 billion pounds, which includes less inflationary tax hikes, would create more room for the BoE to lower rates. However, the vote for a cut as early as this week could be a close call.

MUFG estimates Deputy Governor Dave Ramsden to vote for a cut alongside the two most dovish MPC members, Swati Dhingra and Alan Taylor. Governor Andrew Bailey could be the decisive swing voter, as Deputy Governor Sarah Breeden has always voted with the governor

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