Investing.com — On Wednesday, the upcoming consumer price index (CPI) data for April is expected to be a key indicator of the British pound’s trajectory. Market expectations, as reflected in the Sonia curve, point to a 14 basis point easing in June and a 25 basis point cut in August by the Bank of England (BoE).
Economists predict that inflation in the services sector could exceed the BoE’s expectations, pushing the likelihood of an initial rate cut to August instead of June. This assessment is not without uncertainty, as the upcoming data could significantly influence market forecasts regarding a rate cut in June.
Bank of England Governor Andrew Bailey will give a speech tomorrow, which may provide further insight into the central bank’s perspective and possible adjustments to monetary policy.
Should inflation rates be in line with forecasts, the pound is expected to strengthen. In a scenario that mirrors April’s market moves, the pair could fall below the 0.8550 threshold, reversing the peak when it crossed 0.8600 and fell to 0.8530. Nevertheless, a significant fall in the EUR/GBP exchange rate could leave the pound undervalued, especially if the BoE opts for more aggressive rate cuts than the European Central Bank towards the end of the year.
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