It appears that the Bank of England (BoE) is now also beginning to discuss faster interest rate cuts, Commerzbank’s FX analyst Michael Pfister notes.

BoE's next move depends on inflation figures

“On Thursday, BoE Governor Andrew Bailey put the pound under considerable pressure by openly expressing his support for faster interest rate cuts. As a result, the market has priced in a 25bp cut at each of the two remaining meetings this year. On Friday, the BoE's chief economist, Huw Pill, responded with more hawkish comments, stressing that cautious rate cuts would be more appropriate. Naturally, rate expectations have since receded somewhat.”

“However, this is likely to be a temporary lull. The comments clearly show that the Bank of England cannot disassociate itself from the discussions at other central banks, where the pace of rate cuts is set to accelerate as inflationary pressures ease. This is not good news for the pound. After all, much of the pound's strength this year has been based on expectations that the BoE would be more cautious in its rate cuts and that the interest rate differential with other currencies would shift in the pound's favour.”

“Of course, the BoE's next move will also depend on inflation figures. The latest figures suggest that inflationary pressures remain stubborn, which would argue for further pound strength. However, the discussions make it clear that the risks for a further appreciation of the pound are increasing.”