Sterling briefly spiked above $1.37 following the Fed’s rate cut but quickly reversed, now trading below $1.36 ahead of today’s Bank of England (BoE) decision.
Against the euro, sterling continues to trade sideways, holding within a tight €1.15–€1.16 band through September. The pair appears anchored by balanced rate expectations and muted macro surprises. Without a fresh catalyst – be it a material shift in BoE or ECB policy, or a sharp turn in data – the current range looks likely to persist.
Back to GBP/USD though. The post-Fed move resembled a classic “buy the rumour, sell the fact” reaction, fuelled further by Powell’s hawkish press conference. Still, with the Fed now easing, he BoE’s more cautious stance keeps policy divergence in play, which could support another test of the $1.3787 high before year-end. That said, a pullback toward $1.35 remains plausible in the near term. Today’s BoE decision may prove pivotal. Any surprises in tone or vote split could help steer GBP/USD out of its current chop and set the tone for Q4 positioning.
We expect the BoE to keep Bank Rate at 4% and slow the pace of quantitative tightening (QT) amid concerns about bond market volatility. A September cut was always unlikely, and recent data has done little to shift that view. Markets are aligned, pricing just a 2% chance of a rate cut. The expected vote split is 8-1, with Alan Taylor likely dissenting in favour of a 25bp reduction.
Looking ahead, further easing remains on the table, but the MPC is likely to proceed cautiously. August’s meeting revealed a tight vote and hawkish tone, with inflation risks taking precedence over growth and labour concerns. Slowing wage growth hasn’t yet translated into lower services inflation, and elevated food and fuel prices could push up household expectations.
Meanwhile, QT may be the more market-sensitive decision today. Maintaining the current £100bn pace risks jolting gilt yields amid recent volatility. We expect the MPC to lower next year’s target to around £75bn, implying £26bn in active sales. A deeper cut is possible if the committee aims to avoid market disruption.
The BoE has flagged structural shifts in the gilt market and rising global bond issuance as potential risks to QT execution. We anticipate a tilt toward selling short- and medium-dated gilts, where liquidity is stronger, and stress less acute. Long-end yields have risen sharply since last September’s QT announcement, underscoring the need for a more calibrated approach.
By George Vessey, Lead FX & Macro Strategist at Convera
