Sterling will weaken if rates are cut, although the impact should be measured given the speculation over a reduction already seen
Wider Euro losses help protect Sterling during the day, but the UK currency dipped to an 11-week low against the dollar as the US currency secured a wider recovery and markets tested Sterling technical support levels.
Thursday’s Bank of England interest rate decision will be critical for near-term currency direction. Sterling will weaken immediately on a cut, although the impact should now be more measured given the increase in speculation over a reduction that has been seen over the past few days. The UK currency will rally if rates are left on hold, but the impact should be limited as markets will be expecting rates to be cut at the June meeting. The decision is likely to be close with around a 40% chance that rates will be cut with a split decision likely.
Sterling held its ground against the dollar on Thursday and secured some recovery against the Euro to around the 0.7850 level as the Euro remained under wider pressure in the markets. Sterling was subdued ahead of the UK rate decision.