Sterling kept falling on Wednesday as the BOE is likely to keep interest rates unchanged and signal growing confidence that inflation is heading in the right direction at the meeting tomorrow.
Traders price in 53 bps of easing this year, implying at least two quarter-point cuts. Only one had been priced in after inflation data last month showed prices slowed by less than expected in March.
Fed chair Jay Powell warned it would take longer than expected to get inflation back to target, while ECB President Christine Lagarde insisted price growth in Europe is less demand-led than in the US.
BOE chief economist Huw Pill sent a clear signal that he did not believe the conditions were in place for an immediate cut. But calls for a cut are getting louder with economy struggling to grow.
Last month Britain’s economic prospects have been downgraded by the IMF for the second time in three months considering high interest rates, sluggish productivity and investment growth.
The agency’s forecast is lower than that predicted by the OBR in March, underscoring the difficult task that PM Sunak has in galvanising a more robust recovery before the election expected this year.
The pound has lost momentum after rebounding from the low hit in late April. It could continue to face pressures at 50 SMA and, on the flip side, 1.2300 will put a floor under the pair.
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