Forex Analysis & Reviews: 19.06.2025 - Bank of England to Keep...

19.06.2025 11:02 AM

Bank of England to Keep Rates Unchanged

Today, the Bank of England is expected to keep interest rates at 4.25% and signal that it is maintaining its approach of one cut every other meeting, as policymakers try to strike a balance between elevated inflation, high oil prices, and a slowing economy. This could provide some support for the British pound, which has recently struggled to gain ground.

This cautious strategy by the Bank of England reflects the complex economic landscape, where inflation risks are intertwined with slowing growth. Maintaining interest rates at the current level shows the central bank's reluctance to trigger further economic weakness, while the hint at gradual rate cuts signals a readiness to respond to any potential deterioration in the economic outlook.

However, the effectiveness of this strategy will largely depend on external factors such as global energy price dynamics and geopolitical developments. Rising oil prices could undermine the Bank of England's efforts to control inflation, potentially forcing the central bank to revise its plans.

The pound's stability will depend not only on the Bank of England's domestic policies but also on the overall attractiveness of the British economy to foreign investors. Successfully overcoming economic challenges and fostering a favorable investment climate could strengthen the pound and attract capital into the country. Otherwise, the pound may continue to face pressure despite the regulator's efforts.

To recap, the Monetary Policy Committee cut rates by a quarter point in May in a surprisingly close vote, reflecting concerns that inflation might not return to the 2% target as quickly as hoped. Since then, inflation has surged to its highest rate in over a year, and the escalation of tensions in the Middle East now complicates the outlook further, pushing oil prices higher.

Policymakers are already concerned about second-round effects, where higher prices lead to higher wages and prolong inflationary pressures. At the same time, there are signs that the labor market and the broader economy are weakening under the leadership of Chancellor Rachel Reeves, who increased corporate taxes by £26 billion, and due to U.S. President Donald Trump's trade wars.

Most economists surveyed expect rates to be held steady today, a view that is priced into money markets where traders see virtually no chance of a rate cut. The announcement, due at noon in London, comes a day after the Federal Reserve left U.S. interest rates unchanged while continuing to project two rate cuts in 2025 amid worsening growth, unemployment, and inflation forecasts.

Last month, the nine-member MPC was sharply divided. Chief Economist Huw Pill and external member Catherine Mann voted to skip the quarter-point path and keep rates unchanged. At the other end of the spectrum, Swati Dhingra and Alan Taylor favored a half-point cut. Even among the five who supported the quarter-point move, three were hesitant, including Governor Andrew Bailey.

Any shifts in the voting pattern could send a more subtle signal than a formal policy change. The committee may revise its statement to emphasize the stagnating economy and weak wage growth, possibly resulting in a 6–3 vote split. The tone of the minutes may lean dovish, which would put pressure on the pound. Futures markets currently price in a roughly 75% chance of a rate cut at the next meeting in August, with two more cuts expected by summer 2026, bringing rates down to around 3.5%.

Technical Outlook for GBP/USD

Pound buyers need to break above the nearest resistance at 1.3425. Only then will it be possible to target 1.3445, though a breakout beyond this level will be challenging. The furthest target would be the 1.3475 level. If the pair declines, bears will attempt to take control at 1.3385. A successful breach of this range would significantly damage the bulls' positions and push GBP/USD toward the 1.3360 low, with the potential to drop further to 1.3335.

Technical Outlook for EUR/USD

Buyers need to focus on reclaiming the 1.1485 level. This would allow a test of 1.1530. From there, a move toward 1.1580 is possible, though this would be difficult without support from major players. The most ambitious target is the 1.1630 high. In the event of a decline, significant buyer interest is expected around 1.1445. If no major support appears there, it would be prudent to wait for a retest of the 1.1410 low or consider opening long positions from 1.1370.

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*El análisis de mercado publicado aquí tiene la finalidad de incrementar su conocimiento, más no darle instrucciones para realizar una operación.

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Fundamental analysis

Jakub Novak,
Experto analítico de InstaForex
© 2007-2025

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