June 20, 2025 – Written by Ben Hughes
STORY LINK Pound Rate Today: Short Covering Underpins GBP vs EUR, USD
The British Pound (GBP) dipped against the Euro (EUR) and US Dollar (USD) in immediate response to the Bank of England (BoE) interest rate decision, but found solid support on dips with an element of short covering after the currency failed to extend losses.
Global markets were subdued amid a US market holiday, but conditions were still very tense given speculation over a US military strike on Iran’s nuclear infrastructure.
The Pound to Euro (GBP/EUR) exchange rate dipped to 1.1685 before a recovery to 1.1710 and marginal gains on the day
According to ING; “We retain a short-term target in EUR/GBP at 0.860. (1.1630 for GBP/EUR). It added; “Geopolitical risks and a potential return of trade-induced market volatility in July argue that the balance of risks remains tilted to the upside for the pair despite the recent rally.”
The Pound to Dollar (GBP/USD) exchange rate hit lows near 1.3400 before a rebound to near 1.3450.
Scotiabank commented; “The multi-month trend is intact, for now, as GBPUSD tests the important medium-term 50 day MA (1.3390) support level. A break from here would call for a more decisive call in the trend shift. The latest pair of doji candles signals uncertainty, and we expect the near-term range to be defined by support below 1.3380 and resistance above 1.3480.”
The Monetary Policy Committee (MPC) held interest rates at 4.25%, in line with strong consensus forecasts with the chances of a cut seen at below 5%.
There was no updated Monetary Policy Report at this meeting and, therefore, no fresh macroeconomic forecasts.
There was a 6-3 vote split for the decision with Dhingra, Taylor and Ramsden dissenting and calling for a further 25 basis-point cut to 4.00% at this meeting.
According to Handelsbanken UK economist Daniel Mahoney; “The central bank’s decision was slightly more dovish than expected.”
He added; “I think most people in the markets thought there would be a 7-2 so I think that’s interesting, but I think those three members are obviously focusing on some of those domestic indicators.”
The key theme was uncertainty, especially given important trade and Middle East tensions.
The bank maintained its overall guidance; “Given the outlook, and continued disinflation, a gradual and careful approach to the further withdrawal of monetary policy restraint remained appropriate.”
It added; “The Committee would continue to monitor closely the risks of inflation persistence and what the evidence might reveal about the balance between aggregate supply and demand in the economy.”
It noted that wages growth has slowed and expects this process will continue, but it was still not willing to sound the “all clear” on wages or inflation.
In this context, it stated that further progress is needed to reach the 2% target.
The majority was confident that disinflation was continuing but commented that; “there was not a strong case for a further easing of monetary policy at this meeting.”
Governor Bailey commented; “The world is highly unpredictable. In the UK we are seeing signs of softening in the labour market. We will be looking carefully at the extent to which those signs feed through to consumer price inflation.”
There will also be concerns over any further increase in energy prices.
ING commented; “The hawks, meanwhile, will also have a beady eye on oil prices. Though the rise so far won’t make much difference to the inflation outlook we know some at the Bank are wary of a repeat of 2022, where a rise in energy prices turned into a much wider and more persistent services-driven inflation episode.
PwC chief economist Barret Kupelian also noted geopolitical uncertainty and the threat of a surge in oil prices.
He added; “If that rally embeds itself into wage setting or in household bills, the upside risk to inflation could well push any rate cut further down the calendar. In these murky waters, patience is the Bank’s best compass, steering a steady course between hawkish overreach and premature relief.”
Handelsbanken’s Mahoney considered that comments that the bank is not on a pre-set path was a “critical point.”
In this context, a major spike in oil prices could force the bank to consider a rate hike.
According to the minority, policy was too restrictive at the current time and a further cut was needed at this time to avoid inflation falling too far below 2%.
Markets are now pricing in an 80% chance that rates will be lowered to 4.00% at the August meeting.
Traders also expect that there will be at least one further cut before the end of 2025.
ING added; “our base case is that the BoE cuts rates in August and November, and twice more in 2026.”
Simon Dangoor, head of fixed income macro strategies at Goldman Sachs added; “We continue to expect the bank to resume rate cuts in August, followed by a shift to consecutive reductions starting in November, ultimately bringing the bank rate down to 3.25%.”
Berenberg is not expecting further cuts this year due to upward pressure on costs; “As companies pass those costs on, inflation is likely to prove too stubborn for the Bank to cut again this year.”
Like this piece? Please share with your friends and colleagues:
International Money Transfer? Ask our resident FX expert a money transfer question or try John’s new, free, no-obligation personal service! ,where he helps every step of the way,
ensuring you get the best exchange rates on your currency requirements.
TAGS: Pound Dollar Forecasts Pound Euro Forecasts
