Sterling enters one of the busiest weeks of the year, with three major market events landing in barely 48 hours. UK consumer price inflation for May is published on Wednesday morning, the Federal Reserve delivers its latest interest rate decision on Wednesday evening, and the Bank of England follows on Thursday at noon. For anyone with a dollar or euro requirement on the horizon, it is the kind of week that can move an exchange rate more in three days than in the previous three months.
The domestic focus is Wednesday's inflation figures. Headline CPI — the official measure of how fast consumer prices are rising — has proved stubborn through the spring, and another firm reading would make it harder for the Bank of England to justify lower rates any time soon. The Bank is widely expected to hold Bank Rate at 3.75% on Thursday, the level it has held since the final cut of last year's easing cycle. With the nine-member Monetary Policy Committee thought to be divided, the vote split and the tone of the minutes may matter as much as the decision itself.
Across the Atlantic, the Federal Reserve is also expected to keep rates on hold. April's PCE inflation reading, the gauge the Fed watches most closely, climbed to a two-year high, and policymakers have shown little urgency to cut while high energy costs keep the headline rate elevated. Markets now expect the first US rate cut only later in the third quarter. The risk for sterling is a Fed that sounds more hawkish than expected, which would lend the dollar fresh support and pull GBP/USD lower.
What it means for GBP
GBP/USD begins the week around 1.34, well below the 1.35 to 1.36 range seen earlier in the spring, while GBP/EUR holds near 1.16. With two central banks and a UK inflation print all in play, sharp intraday swings are likely on both Wednesday and Thursday, in either direction. For UK businesses and private clients with a known requirement before then, a forward contract allows today's rate to be fixed for a future settlement date, taking the week's event risk off the table.
