The British pound advanced in European trading Thursday, recovering from a mid-week dip as investors positioned themselves ahead of crucial UK economic growth figures. Sterling’s movement reflected shifting expectations about the Bank of England’s next policy moves amid ongoing divisions among rate-setters.
The GBP/USD pair rose 0.2% to 1.3258. This partial recovery followed Wednesday’s 0.35% decline, when traders locked in profits after the currency reached a weekly high of $1.3361.
Bank of England’s Divergent Rate Path
Last week’s monetary policy decision revealed deepening splits within the central bank’s rate-setting committee. Policymakers voted 5-2-2 to implement a 25 basis point reduction, bringing the benchmark rate to 4.25% – its lowest level since March 2023.
The unusual voting pattern showed:
Two members pushed for a more aggressive 50 basis point cut
Two officials advocated maintaining current rates
Five supported the quarter-point reduction
Markets currently price in a 30% chance of another 25 basis point cut at the June meeting.
Growth Data to Shape Policy Outlook
All eyes now turn to first-quarter GDP figures due later today, which could significantly influence the monetary policy trajectory. Economists forecast:
0.6% quarterly growth for Q1 2024
Substantial improvement from Q4 2023’s meager 0.1% expansion
A stronger-than-expected reading could bolster arguments for delaying further easing, while disappointing numbers might increase pressure for additional rate cuts.
Conclusion
The pound’s recovery reflects market anticipation of growth data that could resolve some policy uncertainty. With the Bank of England clearly divided on the appropriate pace of monetary easing, today’s GDP release may prove decisive in shaping expectations for the June meeting. Investors should prepare for potential sterling volatility as the figures are released and digested by market participants.
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