Mitsubishi Notes Sterling Extends Its Rebound Ahead of Thursday's Bank of England Policy Meeting

07:05 AM EST, 02/04/2026 (MT Newswires) -- Sterling (GBP) has continued to strengthen at the start of this week ahead of Thursday's Bank of England policy meeting, said MUFG.

EUR/GBP broke below support from the 200-day moving average (DMA) at around 0.8650 on Monday. It is the first time that the pair has closed below the 200 DMA since April of last year, as it moves further below the high of 0.8865 recorded on Nov. 14 before the release of the Fall Statement, wrote the bank in a note to clients.

The stronger sterling reflects both a reduction in United Kingdom fiscal and political risks after the Budget was released, and building evidence of a pick-up in growth momentum in the country, as uncertainty has faded, stated MUFG. The latest PMI surveys for January revealed that business confidence jumped to its highest level since April 2024.

Stronger growth momentum has encouraged market participants to push back the timing of the next BoE rate cut, according to the bank. The U.K. rate market currently expects the BoE to leave rates on hold until the April or June MPC meetings.

Without an immediate catalyst to lower rates further, the BoE is likely to remain cautious over lowering rates further at the start of this year, pointed out the bank. At the last policy meeting, the BoE stated the "Bank Rate is likely to continue on a gradual downward path. But judgements around further policy easing will become a closer call."

MUFG continues to expect the BoE to lower rates further this year, but recently pushed back its forecast for the timing of the next BoE rate cut from March to April. A development that is helping to provide more support for sterling in the near-term.

However, the combination of labor market weakness and slowing inflation in the coming months should provide more encouragement for the BoE to resume rate cuts this year while the European Central Bank leaves rates on hold, added MUFG.

At the same time, U.K. political risks could increase around the local elections scheduled to be held in May. As a result, the bank isn't convinced that sterling's current upward momentum against the euro (EUR) will be sustained beyond Q1.

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